Mumbai, 17th September 2020: Entrepreneur Sachindra Nath, executive chairman and managing director, U GRO Capital has said that majorly, fall of financial institutions are a result of governance failures and company board members must ensure checks and balances for the larger ecosystem.
In a live chat with Kailashnath Adhikari, MD, Governance Now during the 11th Visionary Talk Series held by the public policy and governance analysis platform the founder of Mumbai based NBFC while speaking on governance, transparency and role of the board in corporate governance said that governance is a loaded word and it brings balance.
“Any company which is in the business of credit lending and has multiple stakeholders needs good governance practices to bring balance around borrowers, deposit holders i.e. lenders, shareholders and regulators. Failures happen when controllers of these entities want to build their businesses faster than the norm and their personal interest precedes interest of the company. Where the control of the promoters is not curtailed well and interest of stakeholders is not taken care of all FI’s are at risk of failure.”
Nath said that a framework needs to be created for a larger ecosystem and having checks and balances. He said that historically we have presumed that it is the job of regulators to provide a framework to operate. “The problem is regulation does not differentiate between controller and supervisor
and we believe it is the job of an RBI, SEBI or XTZ regulator.”
He said that the framework will provide the comfort that company board members do not have a conflict of interest, nor are they mere nominees of promoters but have the stature and depth of understanding to balance. The board and independent directors not only have to take care of equity shareholders but also simultaneously have checks and balances on issues that can affect the broader ecosystem.
Recalling his own experience of setting up U GRO, he said, we knew Governance cannot be mere lip service and had to be part of our chartered document. “To give an extra layer of governance I decided to list the company and raised sizeable capital largely from institutional investors. Upfront we created a framework within our articles. For example, it said, majority of the board will perpetually remain independent directors; as a promoter of the company I have relinquished my right to nominate more than two board members; we cannot lend more than 1% of our net worth; we cannot unilaterally fire our CRO or CFO and has to have the approval of audit committee chairman” said Nath.
