Supreme Court to HDFC, what does good governance mean to India’s institutions? The judiciary put its reputation first, while the financial system prioritised investors after a banking official felt compelled to resign over ethical values.
The Supreme Court of India has disabled three academics from earning a living because they wrote a chapter for school textbooks allegedly disparaging the reputation of the judiciary.
A law school student, Rishi Kumar, read the entire chapter and published an article on his Substack explaining that a few sentences had been taken out of context from the chapter that otherwise praised the Indian judiciary’s contribution to the nation.
The few sentences to which the complainants had objected merely noted there have been some public complaints about the judiciary. Kumar promptly received a letter from his university to take down the post. The university later said it had only sent an “advisory note”.
Then there is the resignation of the non-executive chairman of HDFC Bank, a successful private sector bank, ranked second highest overall by stock market valuations, behind only Reliance Industries. Atanu Chakraborty said he felt compelled to resign because “certain happenings and practices within the bank were not in line with his personal values and ethics”.
The stock market reacted immediately. The bank’s stock fell 8%-9% in a single session and continued to decline, erasing about $16 billion in the bank’s stock value before stabilising.
Tuhin Kanta Pandey, chairman of the Securities and Exchange Board of India, the stock market regulator, said Chakraborty’s “vague statements” had harmed investor confidence. The implication was that the duty of the chairman and the board – even if they are “independent” directors – is to protect the interests of investors.
More surprising is the criticism of another former finance secretary of the government of India. The chairman of the bank and the SEBI chairman have also served as finance secretaries. This critic has written an acerbic article, saying that “no chairperson or director of a bank, or for that matter any company, has no business to bring ‘personal values and ethics’ into the boardroom. What matters is corporate governance values and ethics.” (Italics mine).
Corporate governance and ethics, he implies, as does the SEBI chief, are about creation of financial value for investors and compliance with written laws only.
The welfare of the people
I want to draw attention to the quality of governance of all institutions that provide public services. These include universities, the judiciary, the media, public utilities and even civil society organisations.
Institutions of public importance include corporations in the private sector that provide services which should be provided equitably to all citizens. These include utilities necessary for the maintenance of lives and livelihoods, such as water, electricity, communication, transportation, education, health, banking and insurance.
The withdrawal of the public sector from these services, and their privatisation for the sake of improved efficiency in their delivery, is resulting in increasing inequalities amongst the “have much more and have much less” in Indian society.
Stock market enterprises that tap into “profits at the bottom of the pyramid” – in business scholar CK Prahalad’s evocative description of the opportunities that developing economies provide – make profits for their investors, not for the people who produce their products and buy them.
The truth is that stock markets and their regulators understand equity only of the stock market kind not the societal kind. That is in the realm of courts of justice.
Democracy and capitalism are founded on different conceptions of fundamental rights. Capitalism’s foundation is property rights, Democracy’s is human rights. Capitalist institutions run on the principle that whosoever owns something has the right to use it as they wish, and that whosoever owns more of a shared resource must have a greater say in how that resource is used. Therefore, whoever owns more shares in a corporation has a larger vote than those who own fewer shares.
On the other hand, ownership of property does not matter while assigning voting rights in democratic institutions. Because, in democracy, every living person, whether they have a billion dollars of wealth, or no dollars at all, has an equal vote in the governance of the collective human enterprise.
The clash between capitalism and democracy is a clash of fundamental principles for good governance of societies. Just as when appliances designed to run on alternating current power are plugged into sockets providing direct current power, there will be blow-outs, when institutions of governance designed to run on fundamentally different principles are plugged into each other something will blow up.
The majesty of the Indian Constitution
In the landmark case of Kesavanda Bharti vs Government of Kerala in the Supreme Court in 1973, a 13-judge bench, the largest ever, ruled that Parliament did not have the unfettered right to amend the Constitution of India. It could amend parts of the Constitution, but it could not alter its basic structure.
Kesavanda Bharti had pleaded with the Court to uphold his right to use his land for his private benefit, whereas the Kerala government wanted it to be developed for the public good. He lost his case because it violated the fundamental principles of the Constitution, the Supreme Court said.
Conceptions of “freedom”, “liberty” and “human rights” are not cast in stone. They are always works in progress. All citizens were not granted equal rights in the US Constitution in 1787: women and people of colour obtained these rights later; and people of different gender identities have begun to be treated equally only in this century.
These new rights, not explicitly mentioned in the US Constitution, emerged from an ongoing civilisational debate peppered with struggles – some peaceful, some violent.
Institutions of capitalism and business and institutions of democracy must continue to evolve. The democratic principle of equal human rights must be vigorously applied to all institutions that have an impact on Indian citizens’ rights to Poorna Swaraj: which is equal political, social, and economic freedom.
Citizens who speak up should not be shut down and told to silence their conscience when it says that what is going on around them is not right.
They provide valuable moments of truth for the leaders of India’s institutions to look inwards and improve our institutions further, as we journey on to our tryst with destiny we set out towards on August 15, 1947, which was poorna swaraj for all citizens of our country.
Arun Maira is former chairman, BCG India, and the author of Reimagining India’s Economy: The Road to a More Equitable Society.
(Published in Scroll https://scroll.in/article/1091799/supreme-court-to-hdfc-what-does-good-governance-mean-to-indias-institutions)