|
Subsequent to the corporate scandal in Satyam, India's
4th largest IT services firm, in
January 2009, many questions have been raised about the effectiveness of independent
directors. Corporate governance scholars have opined that independent directors are
not making any difference in Indian firms. Even research findings seem to substantiate
this argument. The results of the first research paper of this issue validate the ineffectiveness
of independent directors.
The relationship between board composition and firm performance is a
well-researched topic in the literature on corporate governance, though still without a decisive conclusion.
In this regard, researches in the Indian scenario have proved nothing different. Dipanjan
Kumar Dey and Yogesh Kumar Chauhan believe that this indecisiveness may be solved by
controlling the ownership of firms, while analyzing the relationship between board composition
and firm performance. In their paper, "Board Composition and Performance in Indian
Firms: A Comparison", the authors analyze the relationship between these two aspects, after
classifying the Indian firms into four groups—Public Sector Undertakings (PSUs), standalone firms,
private business group affiliated firms and subsidiaries of foreign firms. However, their linear
regression results indicate that Indian firms are no different in their relationship between
board composition and firm performance—larger boards are less effective, except in the category
of PSUs. Similarly, in the case of board composition (in terms of the type of membership) also,
all the four groups of firms show insignificant relationship with firm performance. This
finding raises questions about the very objective of having independent directors on the board, as
per Indian regulations.
Like India, Brazil is also one among the most important emerging economies of the
21st century. However, unlike India, Brazil does not have a long and established history
of financial market regulations. The second paper in this issue analyses the corporate
governance system in Brazil. Alexandre Di Miceli da Silveira and Richard Saito trace and analyze
the evolution of the corporate governance system in Brazil. Their paper, titled
"Corporate Governance in Brazil: Landmarks, Codes of Best Practices, and Main Challenges", briefly
provides the history of the Brazilian corporate structure. The authors further explain the emergence
of the corporate governance movement in Brazil and analyze it, supported by the
existing literature. Finally, they provide a detailed picture of the current corporate governance
structure in Brazil, identifying measures to overcome the challenges faced by it.
Indian business media scholars have indicated that one of the main reasons for
the unearthing of the Satyam scandal in India was the pressure exerted by investors from the
US, as Satyam is listed in New York Stock Exchange. Since the US is reported to have one of
the best corporate governance rules in the world, the investors of the US expect similar
corporate governance standards in all the companies in which they have significant stakes. The third
paper in this issue focuses on corporate governance in the US. Shareholder litigation is one
such important measure available to the shareholders of USA to protect their interests in the
firms in which they have invested. If a firm has good corporate governance mechanisms,
its shareholders need not go for shareholder litigations. In other words, shareholder
litigation results from the failure of corporate governance. Georgi Kalchev, in the paper titled
"Corporate Governance and Shareholder
Litigation", analyzes the relationship
between corporate governance mechanisms of the US firms and their relationship with
shareholder litigations. The author measures the corporate governance structure of the firms using
a corporate governance index, constructed by means of principle components analysis.
The relationship between corporate governance measures and shareholder litigations
is analyzed using Logit regression models. The results confirm the a priori assumption that
better corporate governance decreases the probability of litigation and the risks for
managers, protecting shareholder wealth.
Litigations against managers may be the result of corporate governance problems in
firms. However, corporate governance problems, as such, arise when corporations fail to fulfill
their ethical responsibilities towards shareholders or other stakeholders. In the final paper of
this issue, titled "Ethical Values of the Murugappa Group: A Case Study", the author S
Subramanian analyzes the ethical values that are being practised by an Indian family-owned business
group in practice. The paper, focusing on four important stakeholders of a business
entity—shareholders, employees, society and government—first identifies the espoused values of
the group. It then analyzes whether these values are reflected in its actual practice, using the
case study approach. The observations indicate that the Murugappa Group indeed practices
its espoused values, while fulfilling its responsibility towards the four important stakeholders.
--
S Subramanian
Consulting Editor |
