For real accountability, the govt should adopt company law

By S Murlidharan

Sleaze and wheeling and dealing are not unique to politicians alone. The corporate world too throws up nasty and unseemly spectacles from time to time but they do not remain in the public memory for long nor do they hog sustained media attention because of the misplaced refrain that while politicians fritter away and otherwise misuse taxpayers’ money, corporates by and large play ducks and drakes with shareholders’ money.

Implicit in this facile belief is the notion that governments’ accountability to the public is greater vis–vis corporates’ accountability to shareholders and other stakeholders.The truth, however, is that if one were to make a chronicle and account of corporate sleaze and skullduggery, the results would be astounding and put the shenanigans of politicians in the shade.

Indeed company promoters get away with loot and plunder. Their acts do not come for the same microscopic scrutiny which the acts of any politician of substance are subjected to. Nonetheless, the corporate world, and especially the company law, holds quite a few lessons for government which it would do well to imbibe. Some of the salutary principles of company law meant for corporate governance need to be internalised by the government, the maker of such law, ironically.

Conflicts of interest: Company law in India mandates that proceedings in board meetings should be uninfluenced by interested directors. Thus a director who is directly or indirectly interested in a matter is required to step out when such matter is discussed. His presence would not be taken into account for purposes of quorum when such matter is discussed. He cannot speak on the issue nor can he vote.

Salutary rules indeed, though skeptics would obviously wonder whether these principles are always scrupulously followed. But that is not the point here.In the context of cabinet meetings, are these rules followed?There is nothing in the Indian Constitution that forbids interested ministers from influencing decisions, including seminal ones. In fact there seems to be no codified and well thought out rules of conduct of cabinet meetings, including those on scrupulous maintenance of minutes of the meetings by the cabinet secretary.

Minutes of meetings not only provide grist to posterity but also bring about seriousness among the participants, lest their roles come for negative or dubious publicity.Of course, considerable thought has to be given to the need for secrecy that may impinge on national security and other considerations before allowing general access to such minutes. Perhaps conscientious prime ministers might have read the riot act to ministers, asking them to scrupulously avoid conflict of interest but the question is: is this enough?

It is amazing that the Indian Constitution, which has been hailed as resilient and comprehensive enough to provide for various important contingencies, maintains a studied silence on the issue of cabinet meetings. Company law, on the other hand, contains an elaborate chapter on the conduct of board meetings, though it is another matter that it curiously allows interested directors to vote in shareholders’ meetings. The point, however, is the government should take a leaf out of the law whose lessons it ought to have internalised first before thrusting them on the corporate world in order to send out the message loud and clear that it practices what it preaches.

Accounts: That government accounting lags behind corporate accounting by light years is a truism. Yet, no energetic steps have ever been contemplated in the direction of making government accounting transparent and intelligible. It is most opaque and as inscrutable as the Chinese ruling dispensation. There is no reason why governmental accounting should not conform to the same exacting standards that corporate accounts are expected to conform to. Leave alone compliance with latest accounting standards, government accounts are not even made in accordance with double-entry principles, the bedrock of accountancy for eons.

Citizens need to be told how much of the government expenditure is bankrolled by taxes and other revenues and how much by deficit financing. As it is, it takes considerable expertise in sifting the grain from the chaff.Many of the subsidies are smugly brushed under the carpet. True, unlike a company, a government does not exist for making profits but that does not mean it can dispense with transparent and intelligible accounting.Accounts are meant not only for for-profit organisations. Everyone dealing with others’ money is expected to render proper and intelligible accounts.

Ironical though it might sound, the truth is people have greater faith in government audits vis–vis private sector audits even though the same people repose greater faith in private sector accounting vis-a-vis governmental accounting.

The CAG comes out smelling of roses vis–vis private sector company auditors.The reason is simple: private sector companies choose their own auditors, and the latter do not bite the hands that feed them. This should go and the company law should mandate that like the auditors of a public sector company, the auditors of a listed company too will be appointed randomly from out of a panel of chartered accountants maintained by an independent regulator and watchdog like Sebi.

The author is a chartered account