Indian companies do not favour giving complete management control to professional boards and managers.

This is to be noted that a majority of corporate firms have promoters’ holding over 50%. Even those firms with much lower stake are not willing to give full control to professionals.

This has come to light in a study conducted by trade body Assocham, in which 78% of the 155 CEOs, both from professional and promoter driven firms, answered in the negative when asked whether the promoters are willing to cede complete control of corporate India to independent boards and CEOs.

The study says that trust deficit and family pre-dominance are two main factors coming in the way of transformation of India Inc where the day-to-day operations are insulated from the principal shareholders or group of shareholders like in the United States. In the companies which are being run by professionals in the US and other developed economies, it is not as if the promoters keep completely away from their firms. Instead of direct intervention, the study says, the promoters’ oversight in those economies is through institutional routes like a strong regulator and tough disclosure norms, high standards of corporate governance and activism even on the part of retail and small shareholders who can hold the professional managers accountable from time to time.

In the study, 67% of the respondent CEOs said trust deficit between the promoters and the professionals develops even among the few promoters who have taken a lead in handing over their companies to professionals. On the other hand, over 75% of the respondent CEOs said that the family dominance is a major factor for keeping the professionals away from the top management.

Assocham secretary general D.S. Rawat said that credit should be given to N.R. Narayanmurthy for continuing with his belief that Infosys must be run by professionals despite the fact that the experiment has failed once. “His firm belief in shareholders’ democracy and high standards of corporate governance would be bearing fruits again, now that Nandan Nilekani has taken charge as the Executive Chairman,” he said. According to him, India needs a few success stories before the professional run boards can enthuse corporate India for a significant shift. He said: “The Indian economy is yet to catch up with the developed nations as a large part of it is still to join the formal sector. Even those joining the formal sectors from the informal segments would take time to adopt to global standards.”


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