Corporate Affairs Secretary R. Bandyopadhyay: ‘CSR Is Not Charity — It’s a Win-Win Situation’

The Indian Ministry of Corporate Affairs (MCA) came into the limelight because of the corporate fraud scandal involving Satyam Computers that made headlines in early 2009. Unlike other cases of corporate crime in India, which tend to be swept under the carpet, this is one instance when action was taken.

R. Bandyopadhyay joined the MCA as secretary in September 2009. A career bureaucrat and an Indian Administrative Services officer, he was earlier secretary in the department of public enterprises, and has held posts in other ministries such as planning and program implementation, power, and commerce and industry. Besides regulation, the ministry today has added to its functions the roles of integrator, facilitator and educator. It is in the process of formulating guidelines for corporate behavior. This is its new, market-friendly face, Bandyopadhyay told Jitendra V. Singh, professor of management at Wharton.

An edited transcript of the conversation appears below.

Jitendra Singh: Mr. Bandyopadhyay, welcome to the Wharton School. It’s a great pleasure to have you here and thank you very much for coming to join us.

R. Bandyopadhyay: Thank you Prof. Singh. It is also very important for us to come to the Wharton School and discuss with you the things that the government of India, particularly my ministry — the Ministry of Corporate Affairs (MCA) — is trying to do.

Singh: Perhaps we should start there. To my knowledge, the MCA is a new ministry. Perhaps you can say a little bit more about the context in which it was established: what is the mandate of the ministry?

Bandyopadhyay: The MCA is not a very new ministry. It always existed but it was like a department.

Singh: Maybe it came more into the limelight recently.

Bandyopadhyay: That’s right. It was the department of company affairs (DCA), which must be well known to you. The DCA was changed to the Ministry of Company Affairs about five years back. Then, realizing the importance of the corporate world as such and not only company structure, the name of the ministry was changed to the MCA about three years back. The mandate of the ministry is very large. We administer the basic act which is known as the Companies Act. We [supervise] professional bodies like the Institute of Chartered Accountants, the Institute of Cost Accountants and the Institute of Company Secretaries. We have our wings — the Company Law Board and the Competition Commission. Earlier we had the MRTP (Monopolies and Restrictive Trade Practices) Commission.

The motto of the ministry is corporate growth with enlightened regulations. The regulations you are making or changing or revisiting have to be enlightened regulations. Regulation for regulation’s sake — whether it is a law or a rule or a code — is not what we are looking at.

Singh: I’d like to have our conversation go in a particular direction. My view of corporations within a society is that it’s important to think of them as engines of value creation. Put another way, it is not possible in today’s global economy to think of a country with a vibrant economy and a strong, vibrant and thriving society without corporations that are creating more value in the economy than they are taking in. After all, corporations take in many inputs and their outputs are the engines of value creation.

Value creation can happen in many different ways. One of the important ways — and this is the direction I would like to get your thoughts on — is how value creation is governed within a corporation in the interests of the broader society and the stakeholders, including the shareholders in a publicly-listed company. The governance function becomes very, very crucial. I would like you to talk about the initiatives you have taken, if you have thoughts about the state of corporate governance in India today.

Bandyopadhyay: This is the most important thing our ministry is trying to do. We totally agree with you; corporations are basically there for the creation of value. The ministry has a responsibility towards corporate growth, and unhindered growth. As you know, India’s GDP is growing very fast and we all hope and expect that by next year it may touch double digits. So, unhindered growth of the corporate sector is essential. But, at the same time, the ministry and the government have a responsibility towards investors and the general public.

In December 2009, we had the first-ever India Corporate Week throughout India with the help of all national level trade and commerce bodies like CII (Confederation of Indian Industry) and the Federation of Indian Chambers of Commerce and Industry (FICCI). The entire corporate world got together and we had — it’s unbelievable — 124 different programs in one week, throughout India.

Singh: This was happening in multiple cities?

Bandyopadhyay: Multiple cities simultaneously. The main focus was corporate governance and corporate social responsibility (CSR). You have been teaching about Indian corporate situations. You are well aware that for the past 20 years a large number of committees have been formed, sometimes by the government, sometimes by the apex bodies. [They include] the Naresh Chandra committee and, earlier, the Kumar Mangalam Birla committee.

Singh: The Narayana Murthy committee?

Bandyopadhyay: The Narayana Murthy committee, and many other committees. We took up different committee reports and the latest report from the Naresh Chandra committee and put them on our website. We kept them for one month and requested everybody — all the stakeholders — to give their comments and views. We analyzed, collected and collated them. In the closing session of the India Corporate Week, we brought out what is known as the voluntary guidelines on corporate governance.

Singh: Could you talk about some of the highlights of these voluntary guidelines?

Bandyopadhyay: We have kept it voluntary because the MCA doesn’t want to make something which is absolutely codified and becomes a part of law so that you [have to] follow it. If you don’t follow it then you are punished. We don’t want to do that in the beginning. We have given the best guidelines, evolved over time, telling companies to adopt as many guidelines and as many clauses as possible that are suitable for their company. For genuine reasons you may not be able to implement fully all these guidelines. You comply as much as possible. Where you cannot comply you give an explanation — an explanation not to the ministry but to your shareholders, to your board.

Singh: I suppose there is a role for these voluntary guidelines. On the other hand, there is Clause 49 [of the listing agreement between companies and the stock exchange, which deals with corporate governance]. Could you talk a little bit about the relationship between the regulatory side of governance in India, the role of SEBI (Securities and Exchange Board of India) and these voluntary guidelines?

Bandyopadhyay: These voluntary guidelines are for everyone — any corporate body. They are supposed to adopt these voluntary guidelines. SEBI’s Clause 49 is only for listed companies. You can be listed only if you follow those [SEBI’s] guidelines.

Singh: Not that I have any desire to be critical of what you are doing; these are all good, sensible things. But I can imagine a critic asking if there are some teeth to back up these guidelines. It is a bit like being a Catholic preacher without the hellfire and hell and damnation. What are your thoughts on that? Is there thinking that that might change over time?

Bandyopadhyay: I am happy you raised this point. In fact, it was raised in India also. The fact remains that this is the first step, the beginning. In one year we will see the response of corporate India. We will also take the opinions of professors like you who are opinion-makers.

Singh: Thank you.

Bandyopadhyay: It has generated so much interest and enthusiasm that during the past three months we have received as many as 20 delegations from outside India and they are discussing this matter. We will gain from those experiences and the government of India will revisit the entire thing after a year or so. It may then be decided whether it will remain voluntary. We are keeping our options open.

Singh: I understand. And to your point about people like me and my colleagues being involved in some way, we are always happy to consider that. I wanted to turn just a little bit to the subject of corporate governance itself. I don’t raise the example of [the fraud at] Satyam lightly; these things can happen in the best-governed countries. Frankly, we in America have our own share of corporate scandals. So it’s not a matter of picking on India or an Indian company in particular. But one of the stunning things to me as a student of Indian business and someone who actually knew [Satyam founder] B. Ramalinga Raju and had met him several times, someone whom we had interviewed for our book which is just out called the The India Way: How India’s Top Business Leaders Are Revolutionizing Management, is: how there could be a failure not only at the level of corporate governance, but also at the level of the audit committee? How could there be a failure in the auditing process? How could there be a failure of the internal auditing function within the company? This was rather astonishing.

Bandyopadhyay: This is one of the points that has been bothering the MCA while making laws or guidelines or sending any other directives to companies. I hope you will appreciate that the government of India has played its part well in the entire Satyam episode.

Singh: I must say I was quite impressed. The government did play a very positive role, particularly in the transition [of management].

Bandyopadhyay: True. And not only that. More important, in a country like India, not a single person lost his job. So that is the strength of the ministry, that is the strength of our legal system, that is the strength of our regulation. That is what we have been able to do. Now, on day-to-day corporate governance: there are independent directors, which is a sort of hallmark for corporate governance. They have the best of independent directors. I don’t want to name them but you know that they are the best available in the country. Now, they have been there for a pretty long time…

Singh: You are still referring to Satyam.

Bandyopadhyay: Yes. Corporate governance to my mind has three basic things: one is that independent directors have to do their job properly, they must…

Singh: If I paraphrase that, independent directors have to continue to act like independent directors and not become de facto employees of the company, beholden to the management. That in my experience is where the crack occurs sometimes.

Bandyopadhyay: You are a professor, you said it very correctly. I mean, that is what it should be. Then the auditors have to do their job also. Auditors should not be satisfied with what the management is telling them; they should do something more than that…

Singh: Like checking how much cash is in the bank account, for instance.

Bandyopadhyay: So these are some of the things. Now if you see our new guidelines, we have taken care of these types of things. But in the ultimate analysis it is the ethical question — it has become an ethical question. Everywhere I go and meet my counterparts in various countries, this is a very big question. You can frame laws, you can frame regulations. But the persons who will be ultimately in charge, their ethical standards and their technical qualifications, their technical standards, should be improved. That is a very important thing. And there I see a very positive and distinct role for professors like you and the Wharton School and other important management schools throughout the world. The ethical standards of your students who will ultimately be managing directors or chairmen of many companies have to be improved. If we can’t do that, if we can’t impress upon them that that they are custodians of public money, they are the trustees — if we go to the Mahatma Gandhi concept of trusteeship… They are actually the trustees of the nation.

Singh: You have raised a very important point: this notion of being a trustee and leadership as trusteeship. This is something that needs to be strengthened not only in India, but even in America and many countries across the world, the notion that you are in a role and you are entrusted to look out for the interests of multiple stakeholders. Your own interests cannot be paramount. In my opinion, this is where some of the mischief has occurred. Do you have any thoughts on that?

Bandyopadhyay: I am totally in agreement with you. I feel that whether they be government bodies or professional institutions or universities, academic institutions like yours, all of us have a role and a responsibility that we should collectively [exercise].

Singh: Going back to this notion — and I like very much your allusion to Mahatma Gandhi because he was writing about the notion of trusteeship and leadership as playing the role of a trustee. What my colleagues and I have been writing about and have noticed in our research on Indian companies and Indian management practices [is that] there are some really unique ideas coming out of India. The notion of leadership as a trustee, for instance, is very much part of the Indian social ethos.

I’d like to turn your attention to the domain of CSR. Just a few weeks ago, I taught a case on Tata Sons, and Mr. R. Gopalakrishnan, who is executive director of Tata Sons, joined us by video conference and gave an absolutely fabulous lecture to my students. One of the stunning things about Tata Sons is that two-thirds of all the profits made by Tata Group companies go into two charitable trusts. I can think of very few companies in the world that are doing this and they (Tatas) were doing it 100 years ago. There is something unique about Indian business ideas, management practices and corporate leadership, particularly in the domain of CSR.

I’d like to invite you to share your thoughts on the domain of CSR and indeed where India might have ideas to share which could change the practice in other parts of the world.

Bandyopadhyay: You mentioned Tata Sons and the Tata Group. They have been doing this work for a fairly long time. We are very proud of them and many other companies who may not be so well-known. They are also doing a lot of the so-called CSR activities. Some of our state-owned enterprises have been doing extremely well in many areas.

The MCA has given due attention to this aspect also. Along with corporate governance, we have been aware that CSR is very important for the Indian corporate sector to attain maturity. There is Tata Sons. There are other companies also. But many other companies don’t know how to go about it or its importance. So along with the voluntary guidelines on corporate governance, we also published the voluntary guidelines on CSR.

Many of the concepts that we have been discussing are mentioned here. CSR as we look at it today is not charity. People sometimes mistake it for charity. It’s not. It’s much more than that. It’s a win-win situation. Unless you are involved in this, your brand value will not improve. Everybody respects the Tatas; this is one of the most important reasons.

Similarly, brand values of companies will improve. Let us take a mining company. If a mining company is not greatly involved in CSR in its area of operation, it will find it very difficult to carry on its day-to-day activities.

Singh: The way conceptually I have thought about this domain [is that] CSR reflects the values, the changing cultural norms of society in the practices, policies, structures and philosophies of your company. This reflects what’s happening in the rest of society and connects back to the foundations of the society you are part of. This is what gives a company the social legitimacy required, the right to exist. People frequently get confused and say the only business of business is to make money for the shareholders. But you have to first have the right to exist. Only then can you make money for your shareholders.

Bandyopadhyay: Let me say one thing: I could not have agreed more with you on this particular subject. We particularly feel that the social legitimacy, as you put it very correctly, as well as the moral authority of the company improves and increases as long as they are behaving in a responsible manner both in terms of corporate governance, in terms of transparency, as well as in CSR.

Singh: One of the gating factors for India’s continued growth is the education sector. If you look at global rankings of the top 500 universities in the world — the Shanghai Jiao Tong University in China does this ranking — there are only two Indian institutions in the top 500. Believe it or not, the highest ranked one is Indian Institute of Science in Bangalore which is at between 200 and 300. The only other one is IIT Kharagpur, which is between 400 and 500. By comparison, the United States has about 70 or 80 universities or institutions, China has about 30 or 40, and China is much more comparable to India. In that context I am very intrigued by this news that the new Foreign University Education Bill is going to be tabled before Parliament. I see this is a very positive step.

Bandyopadhyay: This is a very important point about making our academic institutes world-standard. Lots of things are happening; lots of things are changing. I am sure that you will find some result very soon from that sector. India will not be lagging.

Singh: I certainly hope so as well because we at Wharton would really want to be part of that India. Thank you so much Mr. Bandyopadhyay, it’s been a pleasure talking to you.

Bandyopadhyay: Thank you very much. It’s been a pleasure.