When Narayana Murthy walked the talk on Good Governance

Time, economic conditions, pressure of high expectations and the tax department may have taken a toll on his image, but there was a time when NR Narayana Murthy not only walked the talk on good governance but showed how committees can function differently

In 2003, I had the privilege of being a part of the Narayana Murthy Committee on Corporate Governance set up by the Securities and Exchange Board of India (SEBI). The committee made some tough recommendations, many of which have now become a part of the ‘voluntary’ code prescribed by the ministry of corporate affairs. The recommendations agitated corporate India, notably Ratan Tata, who dashed off an angry letter to the Confederation of India Industry (CII), saying that the committee was going too far with its demand for disclosures. But it didn’t make much of a difference to the report, because the process was flawless and democratic. It is another matter that corporate lobbying succeeded in ensuring that many of the recommendations were dropped; in fact there was so much anger that SEBI, as an independent regulator, was forced to send the report to the then finance secretary for approval before putting it out on its website for discussion.


It is worth revisiting what Mr Murthy did in 2003 to ensure that a significant report was completed in just three sittings (plus an additional one to review some recommendations following Ratan Tata’s angry letter). Here are excerpts from a speech that I made at the CII’s national conference in Delhi in 2003 where I addressed unnecessary anger of corporate India about the report and outlined the process that was followed.


It is important to remember why the committee was set up in the first place. In 2003, just after the Ketan Parekh scam corporate India was exploiting the freedom granted by liberalised laws to exploit shareholders. As I said that day, the best of corporate groups (among the top 50) had short-changed investors—especially during mergers and takeovers; independence of directors had been exposed as a sham after they remained silent about rampant insider trading and illegality by companies; top corporate houses were found indulging in price manipulation and insider trading. And almost every merger/acquisition exploited the loopholes provided by Section 391 of the Companies Act (or the scheme of arrangement via the high court route) to short-change retail investors. Hence the decision to revisit good governance norms.


CII’s main objection to Narayana Murthy Committee’s recommendation was that independent directors should step down from the board after three terms of three years each. (Something that Mr Murthy himself has forgotten with respect to his two key independent directors Omkar Goswami and Deepak Satwalekar). At the conference itself, we saw JJ Irani, otherwise a highly regarded Tata director making absurd statements like “directors began to make the best contribution only after they have been on the board for 20 odd years”. This was at a time when the most countries (Bill Clinton in the US, Tony Blair in UK and Valdamir Putin were ruling the world’s most powerful countries in their ’40s or ’50s).


A senior Tata director R Gopalakrishnan was on the committee. Why did he or the CII and FICCI representatives on the committee not protest? Well, because as the committee chairman Mr Murthy had put in place a process that was democratic and flawless. Here is how he completed the work in just three sittings.


* Mr Murthy wrote to every member, including four investor representatives asking for a two-page note on the key governance issues that needed to be addressed. His own office collated the submissions (some industry representatives, used to long-drawn deliberations did not bother to participate) into 75 key issues. This eliminated the usual round of opinions and speeches that usually happen on day one of any new committee meeting.


Each committee member was then asked to rate each of the 75 issues on a scale of 1 to 10, on the following parameters:


Importance: is the issue important enough?

Fairness: Does the report enhance fairness?

Accountability: Will it make companies more accountable?

Transparency: Will it increase transparency?

Ease of implementation: Is it easy to implement?

Verifiability: Is the recommendation verifiable?

Enforceability: Is it enforceable?


The submissions were again processed by Infosys – or rather Sumant Chidambi of Progeon—and aggregated. Only those issues that scored more than 50 marks were taken up for discussion at the second meeting. These were issues that received high ratings from a majority of members.


The result? All extreme views were eliminated leaving a smaller set of issues that the committee deliberated. Even here, every point was decided by a vote. For instance, the debate on the term of independent directors started with a demand that independent directors must change every three to five years.  Finally, the majority decision by vote settled for three terms of three years, to be applied prospectively.


SEBI itself was pushing its own agenda for introducing good governance ratings—which probably was its reason for setting up the committee. But that too was outvoted.


Muthy’s commonsensical and businesslike approach was never followed before or after that committee, as far as I know. In fact, the endless talkfests at most committee meetings ensure that only those with the hidden agenda succeed while the rest keep talking.


Sadly, pretty soon after that Mr Murthy forgot the report and accepted the NDTV directorship, even though he knew he couldn’t attend a single meeting in the first year.
(See: Corporate Governance: Convenience Rules with Infy Too)

9 years ago
That NRN returned to a company he built from a clean slate is indeed a case of bad governance. He has NO Right whatsoever and must leave his business for those greedy ones waiting for him to exit permanently and never give an opportunity to his son too even if he is capable and son must fend for himself. NRN also did a very bad thing by not marrying his son Rohan to one of the Bollywood sleep around and fakesters who pay the media to be called social activists but who apparently Sucheta Dalal endears fondly.
9 years ago
Aristotle said, "It is the mark of an educated mind to be able to entertain two contradictory thoughts without accepting either" (slightly modified by me to fit this context).

So, it is possible for a man to be highly intelligent, democratic, fair, transparent, etc., while also being greedy. There is no contradiction here - a human being can have both qualities simultaneously.

In fact, I'd go a step further and say that greed is fundamental to human nature, and we should not be surprised to see it in any person, whereas intelligence is not a fundamental human attribute, and is rarer to find.

I am not for a moment suggesting that NRN's greed is excusable or pardonable (especially when it affects other people), but we should certainly not be surprised that he can be both intelligent and greedy.

This same kind of expectation is also seen when we expect our public leaders to be asexual characters who are not supposed to have any physical desires. The Europeans, I feel, are far more realistic about this aspect.
S Santhanam
9 years ago
He is after all a true Indian - a man having faith in dropping some offerings in the Hundi of some temples to cleanse his sin like Vijay Mallaya did by dropping kilos of gold while KFA staffers were denied their salaries. As mentioned by one of the readers, the very fact that he invested in institutions like SKS microfinance through Catamaran Investments goes to prove his greed to make more money for himself than share with the society.
Neeta Baporikar
9 years ago
No point in worshipping mortals only to realize that they have feet of clay only!

General tendency of Asians is to idolize (heroworship).

Why not rather be issue based!

Dr. Neeta Baporikar
shailesh gandhi
9 years ago
I think this method of evolving consensus and preparing reports on such matters is outstanding, and should be followed everywhere. Thanks for sharing this with Moneylife readers.
9 years ago
Humans are unpredictable and undependable. As a society we need to involve computing at a greater level. There are rules based expert systems as well as "true" Artificial Intelligence systems that have arrived and are in use. I'm saying this because humans are imperfect and if the Corporate Governance code was in an expert rules based system, the computer would have rejected Mr. NRN's candidature to directorship at NDTV!

SKS Microfinance is a micro finance lender. The blood sucking part comes in because India has a non functioning Police and Judiciary with laws passed in the Legislative that are conflicting in meaning. Then the rule of law collapses and the goons have to come in and do the collections. Like all bubbles, the microfinance bubble burst and the Government of Andhra Pradesh was benevolent to the vote bank and decided to BAN collection of loans. Talk about the Government getting a fat vote bank using private sector capital. As I say, this country is effed to the nth degree and only a moron would deploy capital in this overpriced country where the rule of law does not exist.

Rajan Alexander
9 years ago
For me, when he invested in SKS Microfinance, giving respectability to a blood sucker, that was the day I considered the "corporate saint" one of the biggest hypocrite in our country
nagesh kini
9 years ago
It is in keeping with the age old Marathi adage
"Loka shangey Brahmagyan paan aapan kordey pashaan."
Can anyone come out with its equivalent in English or any other language to convey its import undiluted?
nagesh kini
9 years ago
It is in keeping with the age old Marathi adage
"Loka shangey Brahmagyan paan aapan kordey pashaan."
Can anyone come out with its equivalent in English or any other language to convey its import undiluted?
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