Corporate governance vs public governance

I have always been sceptical about the claims made on behalf of corporate governance. Yes, the rise of activist shareholders poses more demands on the board and the board, in turn, has become more demanding. But the power-centre in a corporation remains an all-powerful CEO. The CEO's accountability to the board is nowhere near what it should be.

Part of the reason is that directors are not appointed by shareholders. They are selected by the CEO with shareholders having very little say in the matter. 'Independent' directors is a term that is used too loosely. It is interpreted to mean any director who has no operating responsibility with or pecuniary interest in the company. A more rigorous interpretation would be 'independent of operating management'. The latter kind of independence is possible only if directors are elected by shareholders. But this is next to impossible today, as is the removal of directors.

This is one area in which corporate governance has much to learn from public governance where we have competitive elections and clear voting rights and voting rules. A recent paper points out out there are other areas as well. I comment on the paper in my latest ET column.

There is one other point I didn't get a chance to mention. In public governance, there is recourse for employees. In India, we have Tribunals to whom civil servants can go if they feel they have been wronged. In the corporate world, there is none. What obtains is a form of monarchy where the CEO's writ goes unchallenged.

I find it strange that the absence of democratic mores in corporations does not provoke outrage. I reckon this is because people see corporations are creating wealth and opportunity and are unwilling to put any spoke in the wealth-creating machine. But, going by the same criterion, we should judge dictatorships only on economic growth and forget about human rights. In the democracy versus growth argument, my sense is that democracy has won out. If this holds for public governance, why not for corporate governance?