Corporate Misgovernance: A Case of Individual Responsibility
- Addressing Recent Scandals: The Chairman of the Securities and Exchange Board of India (Sebi), Tuhin Kanta Pandey, stated that corporate misgovernance episodes like the fraud at Gensol Engineering or the front-running by a mutual fund manager should not be considered systemic issues necessitating regulatory overhauls.
- Individual Accountability: These incidents, according to Pandey, are a result of greed and egregious behavior rather than failures in the broader governance system. Therefore, the responsibility falls on independent directors, boards, and auditors to take proactive measures to prevent such misconduct.
- Existing Governance Standards: He emphasized that the necessary governance standards and “guardrails” are already in place, and it is up to the stakeholders within companies to function within these parameters.
Role of Sebi and Regulatory Oversight
- Regulator’s Limitations: While Sebi can act swiftly when it detects wrongdoing, Pandey highlighted the limitations of the regulator. He acknowledged that Sebi cannot monitor every boardroom or manage every corporate decision, which would be ineffective.
- Intervention in Public Interest: Sebi intervenes when the public interest is at risk, such as when public investors could be impacted by fraudulent activities. Timely action is emphasized, particularly through interim orders, in cases where further delays could harm investors.
Futures and Options (F&O) Trading
- Curbing Speculation: On the issue of excessive speculation in Futures and Options (F&O) trading, Pandey mentioned that feedback from market participants is being carefully evaluated.
- Caution Against “Casino-Type” Trading: He expressed concern about the trend where younger traders, particularly, engage in speculative or “casino-type” trading. He pointed out that while F&Os play an important role in liquidity, price discovery, and hedging, the excessive speculation in options trading is not aligned with their intended purpose.
- Systemic Improvement: Sebi is looking for systemic improvements to curb speculation, ensuring a better balance between risk and reward in the market.
Sebi’s Approach to Regulatory Oversight
- Not Overreacting to Isolated Incidents: Pandey firmly stated that, despite occasional failures due to the actions of a few individuals, it would not be appropriate to introduce more stringent regulations based on isolated instances of corporate misconduct.
- Regulatory Effectiveness: While acknowledging the limits of regulatory intervention, he stressed that Sebi would continue to focus on timely and exemplary actions to create a chilling effect on potential wrongdoers.
Sebi’s chairman, Tuhin Kanta Pandey, reassured that while the regulator has robust governance standards in place, the responsibility to prevent corporate misgovernance lies primarily with boards, independent directors, and auditors. Sebi continues to focus on timely intervention to protect public investors and curb speculative trading practices. He emphasized that regulatory changes should be systemic, not driven by the actions of a few individuals.
