The Centrality of Transparency

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        The first part of this series as the introduction is here. The central theme of Governance is transparency, and that transparency should encompass every sphere of activity. The focus has to shift from transparency as predominantly meaning disclosure which is primarily history, but it should also encompass functional aspects on a dynamic real-time process. One of the serious gaps in this Infosys Saga is the stuttering transparency in matters related to Governance.
Corporate Governance is generally understood as the system of rules, practices and policies of a company which has as its objective optimising and maximising the Stakeholder value. Since corporate governance provides the framework for attaining a company’s objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure. Transparency is the string which holds the system on a tight leash.
A small digression into the philosophy of transparency would not be out of place. Take for example the well-known RTI. Does it promote transparency? In my opinion, it isn’t. How? The very enactment RTI has put a cost on those demanding disclosure, and there is an inherent right to suppress information unless an application for RTI is filed. Hence Transparency requires that there is a free flow of information to all and not limited to a few who can afford or put pressure to get information.
If we apply these tests on the goings-on in Infosys, there is an apparent lapse of governance. The various communications to and fro the group of shareholders led by NRN Murthy on the one side and the Board along with CEO, on the other hand, indicate the exchange of many information between to the exclusion of other Shareholders.
Now let’s see what the ‘Jagadguru’ of Corporate Governance Warren Buffet says in this regard. “While I’m on the subject of our owners’ gaining knowledge, …(we), believe all shareholders should simultaneously have access to new information that Berkshire releases and, if possible, should also have adequate time to digest and analyze it before any trading takes place. That’s why we try to issue financial data late on Fridays or early on Saturdays and why our annual meeting is always held on a Saturday (a day that also eases traffic and parking problems).
We do not follow the common practice of talking one-on-one with large institutional investors or analysts, treating them instead as we do all other shareholders. There is no one more important to us than the shareholder of limited means who trusts us with a substantial portion of his or her savings. As I run the company day-to-day – and as I write this letter – that is the shareholder whose image is in my mind.” (reproduced from letter of Annual Shareholder letter Berkshire Hathaway).
The series of correspondences back and forth (alluded supra) indicates serious violations of Regulation 4 of the SEBI(LODR), 2015. Regulation 4(2)(c) and (f) requires that there shall be equitable treatment of all shareholders and Channels for disseminating information shall provide for equal,(emphasis supplied) timely and cost-efficient access to relevant information by users.
Transparency per se has two aspects to it a) Disclosure of all relevant historical information and b) Public availability of information surrounding the process and method of decision making. In the Infosys Saga, the CEO in his letter of resignation in the 4th Paragraph says: “Addressing the noise by itself is damaging; hundreds of hours of my own time has gone into this recently. But the structural challenges this engenders within the organization, has a very damaging effect on our ability to carry out any kind of a transformation, especially one that is as fundamental as transforming from a cost-oriented to an innovation oriented value delivery to clients.”
The Board has in its response put out a statement which has listed anecdotal evidence of engaging with a group of shareholders about which there had not been any official press release immediately before or after such engagements. These, by a company under law and practice, is supposed to share as these are price-sensitive – demonstrated by the fact that this episode has dragged the price of Infosys shares down phenomenally.
Most of those demanding Transparency is only worried about the transparency of historical data or facts on mostly financial information but what is more important for governance is the transparency in the Governance. If accountability is key to Governance, transparency of the decision-making process is the fulcrum of governance. Neither those engaging the Board or individual directors have been transparent during such engagements. One can gauge the failure of transparency of Governance process by the leaks of communications happening episodically. May be to draw an analogy from Politics, this is reminiscent of UPA days.
The equation propounded here may not be mathematically appropriate but the point to be noted is that one of the simple definite integral solutions for an equation is as follows:
B
∫f(x)dx = F(B)-F(A)                       If we substitute this grossly in the equation alluded,
A                                                        Transparency of governance should be more than the
transparency of performance to maintain the positive increase in stakeholder value.

The Governance template and the legal implications and options are the other aspects to be looked at closely as the next dimension of the Saga.

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