Et tu Tata!

Et tu Tata!

Recent developments at the Tata Group in general and Tata Sons particularly have shaken corporate India in terms standards of good governance in companies. The group had meticulously built a reputation over the years for ethical and responsible corporate behavior that went far beyond the basic mandatory compliance requirements. Almost overnight, that reputation appears to have taken a beating after the news break that the board of Tata Sons (the parent company of the group) had removed its chairman, Cyrus Mistry (CM) from his position for his non-performance; and the return, albeit temporarily, of the immediate past chairman, Ratan Tata (RT) as the board chief. Unsurprisingly, this was responded to by CM questioning his removal and highlighting several process and governance related deficiencies, besides also ‘exposing’ many bad management decisions in the company and its associates during the reign of RT as board chair. This latter charge is unlikely to pass muster as CM was himself on the board when those decisions were taken (apparently with no evidence of recorded dissent by him), and even more importantly, the judiciary is usually loathe to second-guessing business decisions unless some palpably fraudulent intent behind such decisions was apparent. As for the board decision to replace its chair, it would seem at least legally to be in order since such power does indeed vest in the board; if there are some procedural lapses, clearly they could perhaps be rectified without any collateral damage to the decision itself.

More than the legalities of the situation, the case has attracted attention in the media and the markets precisely because this happened at the Tata group, something not expected from the bellwether beacon of good governance. And as more allegations and counter-allegations were traded by the warring camps, even inappropriate actions and decisions that would have otherwise been overlooked as minor got exacerbated under public scrutiny. Boards of some of the big listed group companies deciding to retain CM as their chair and expressing their confidence in his leadership and so on have not helped the Tata cause either. One is also left with the uneasy feeling as to whether what was now in public domain could just be the tip of a rather huge and potentially dangerous ice berg, not only in the Tata group but across the board in the listed company population in the country, dominated as it is by similar concentrated ownership and dominant control regimes.

The focus of this post is to analyse some of the governance related issues that are discernible in this episode and to explore whether there may be a case for further regulatory interventions.

Board vs Shareholder Primacy                                                 

The issue of primacy in corporate governance is a much debated topic; if shareholders are the principals (in the agency theory construct), then the body of directors they elect must be accountable to them and this position is fortified by the fiduciary obligations that the directors owe to the company and all its shareholders. On the other hand, the board ought to have freedom to act (through and with the assistance of the executive) in the interest of the company and its shareholders (and in India, now, also other statutorily specified stakeholders); this must necessarily limit shareholder interventions to the core minimum. Even so, Indian corporate law, overall, tends to lean more strongly towards shareholder primacy on many issues than for example the comparable situation in the US.

If the principal shareholders (the several Tata Trusts) with a commanding majority equity holding in Tata Sons wished to exercise their primacy to decide who should be the board chair, the best forum would have been a shareholders’ meeting (to remove CM as a director and consequently as the board chair), but that did not happen. The principal shareholders apparently had CM removed from chairmanship by the company’s board of directors. Prima facie the board was well within its rights to do so, but if media reports were to be believed, that decision was based on the fact that the principal controlling shareholders, the Tata Trusts had lost confidence in CM. The question is how did the unaffiliated, “independent” directors on Tata Sons board conclude that CM was not fit to be their board chair any longer. Were they being swayed by the views of the controlling shareholders? Were they discharging their fiduciary duty to the company and all the shareholders of Tata Sons while removing CM from chairmanship or were they (as happens when directors are “captured” by the controlling shareholders or the executive management) serving the interests of the controlling shareholders alone? It is axiomatic that the directors of a company ought to perform in the exclusive interest of its shareholders even if that meant not aligning with the interests of the “group” or the “parent” company. Did the directors of Tata Sons conscientiously decide that the continuance of CM as the board chair would militate against the interests of the company and all its shareholders? If they did, and if they had convincing reasons to do so, It would be difficult to question their decision or to second-guess their motives unless some prima facie evidence was offered to the contrary.

Role Confusion

CM was the executive chairman which meant he was also the CEO of Tata Sons. There is usually some confusion between the roles of Board chair and CEO when the two jobs are combined in one person. If CM's "performance" was found unsatisfactory, as Tata Sons avers, the question  is whether he was sacked as CEO (and collaterally as board chair) or was his performance as board chair unsatisfactory.

If the proximate cause for dismissal was his failure as board chair, then the mandatory performance evaluations should have highlighted this deficiency, in which case his removal could have been more civilly handled than by an abrupt dismissal. If his performance as CEO was unsatisfactory, then the Remuneration and Nomination Committee would have discussed it with him and recorded in the minutes; even then the removal could have been more orderly than was the actual case. Of course, the Tatas have maintained this removal was not as abrupt as is made out and had been brewing for some time but CM has denied such was the case!

There may be a strong case for companies as well as the media to use in all reporting and communications the appropriate designation depending upon its subject or context: this would require the person to be referred to as the CEO or Managing Director in respect of all executive matters, leaving the title ‘Chairman’ to be used only in regard to board related matters being reported upon.  

Controlled Company Governance

The third dimension of these developments relates to the governance of "controlled" companies, especially where they are listed or deemed equivalent in law. The concept of controlled companies is well recognised in the US regulatory regime and in some other jurisdictions but in most of those countries such “controlled” companies are the exception but in India (and a vast majority of other countries around the world) where concentrated corporate ownership is predominant, such companies (like Tata Sons and its subsidiaries including many of the affiliates) they are the rule. The challenge now is that in the interests of harmonisation with global (read US) best practices we are trying to apply the rules of a diversified share ownership regime to a predominantly concentrated share ownership dispensation. This approach inevitably leads to a situation of what the famous economist John Galbraith had called “innocent frauds” where gaps between conventional wisdom and actual reality are consciously accepted and ignored! Regulatory requirements in countries such as, for example, Canada (another jurisdiction with a predominantly concentrated ownership regime) may offer some more appropriate options to cope with such comparable situations.

Concept of Corporate Parents

Fourth, the concept of "groups" is well accepted in India now (unlike in the hey days of our left-of-centre orientation in the 1950s and 60s when “large” business houses and concentration of economic power were anathema) and one cannot escape the reality of controlling parents or shareholders having a greater and quicker access to privileged and often price-sensitive information, and managerial influence on the subsidiaries and associates in the group. If Tata trusts were reviving information from Tata Sons and other companies in the group, it will be nothing but a natural consequence of their control over management (and no different to multinational parents or the government ministries receiving briefings and information from their subsidiaries and associates); the natural corollary is that in such controlled companies, we are bound to have "agency type II" issues (protecting the interests of minority shareholders not only from the hired executive but also from co-shareholders in management control) besides the usual type I problems ( protecting the interests of the hired executive, as in case of dispersed ownership regimes).

It would be unrealistic to ignore the inevitability of such a situation; at best, regulatory requirements may hope contain the potential abuse of such privileged access by the controllers. To some extent, this is already being attempted on issues like insider trading but to expect that parental influence could be totally eliminated would be bordering on being myopic.

Block Holders not in Operational Control

Fifth is the issue of inter-se relationships between block holders who are in management control and those that are not; in Tata Sons, there is one such significant player, the Shapoorji Pallonji group which reportedly owns some 18% of the equity. In theory, such outside block holders have the potential to play kingmakers, opening up avenues for special rent-seeking from the controlling shareholders. CM was and is in a catch-22 situation, belonging as he does to the Shapoorji Pallonji group and yet in a management position in the company. State-owned Life Insurance Corporation is another block holder being an institutional investor; its independent judgement on such matters will most likely be presumed to be subject to government intervention. It is not a simple coincidence that both RT and CM had written to / met with the Prime Minister immediately after the event (here again, the parent’s primacy issue is obvious). The chances are that such institutional investors, unless directly impacted, will take a neutral stand and abstain from voting (as indeed, post these developments in the parent company, LIC reportedly did in the shareholders’ meeting of one of the Tata companies, on the issue of removing CM from its board of directors).

Institution of Independent Directors

Not unexpectedly, the role of independent directors on the boards of Tata Sons and some of the other large listed group companies has had to face up to adverse comment. Such directors are nearly always in the unenviable position of being “damned if they do and damned if they don’t” and one should stoically bear this proverbial Cross! One possible regulatory improvement is to mandate such independent directors be elected by a majority of the non-controlling shareholders. There is conceptual merit in this proposal since a major (even if not the only) role of such directors is to ensure that the controlling shareholders do not unduly abuse their advantageous position. While such a regulation would strengthen the bulwark of the institution of independent directors, it may not be an impregnable shield against “capture” of directors by vested interests; and yet, to the extent it can help in containing (even to a limited extent) such undesirable practices, it will be welcome step.

To conclude:

In the great Indian epic, the Mahabharata, there is an episode where the righteous and ever-truthful king Yudhisthira was obliged to utter a half-lie to cope with the exigencies of war; as a result, his chariot which reportedly always ran a little above the ground (like an hovercraft presumably!), had to forego that unique trait of greatness and drop down to earth on par with the other chariots of lesser mortals. Events of recent weeks have an uncanny similarity; as undisputed reputational leaders, Tatas cannot avoid bearing the reputational consequences of any slippage from the high norms they had set for themselves virtually from their inception. The extent of such reputational erosion and its impact on group companies is hard to predict; one thing is certain: redressing this slippage and regaining the reputational high ground will be time and effort consuming.

Bhishma, the Ultimate Resource for Business and Politics

Bhishma, the Ultimate Resource for Business and Politics

Among the myriad of players in the great epic, The Mahabharata, two characters stand out prominently towering over the rest: Bhishma, the scion who renounces his right to the kingdom to enable his father marry a woman of his choice, who dominates the entire epic spanning over five generations--in the earlier phase playing the role of an active participant, and later on becoming a learned and well-respected elder statesman and mentor; and Vasudeva Krishna, an incarnation of Lord Vishnu, who plays the role of a non-partisan counsellor, mediator, and the overarching, non-participating chief and mentor for the victorious Pandavas. To Vasudeva Krishna is also attributed  the famous Bhagavad Gita, the celestial song on the duties and responsibilities of humans in steering their lives in this world, delivered on the battlefield to Arjuna, the reluctant Pandava who could not come to terms with the idea of decimating friends, family, and other elders whom they were to fighting against.

Bhishma is the chosen anchor for my latest book, The Bhishma Way: Ancient Dharma for Modern Business and Politics (Random House, December 2015). Why did I choose Bhishma? For one thing, Bhishma is relatively less researched and written about, compared to Vasudeva Krishna. But I was the man himself, his life as a message, and the rich counsel that is available in his voice in the epic, which is of continuing relevance to the present day problems and issues of governance and personal behaviour in business and politics.

As a strict upholder of Dharma both in his personal and public life, there are indeed very few equals to Bhishma. His commitment to truth and values was unquestionably rocky firm. His sense of justice serves as a beacon light to civilised people around the world. One could differ from and argue with his exposition of social and ethical principles, especially in the present day changed circumstances, but none could question either his sincerity of purpose or his commitment to what he thought was right and ethical.

Was he always infallible in his judgement or actions (and even in-actions)? Of course not; and that is what makes Bhishma so human and so relatable to any of us in our day to day activities. Towards the end, he himself realised his follies but by then it was too late for redemption. If some of these anecdotal incidents appear to bear some uncanny resemblance with our own personal experience in business or political behaviour, it only confirms how timeless Bhishma and his life were, nay, are in our modern circumstances.

Governance is the primary focus of this book, exploring how contemporary administrations can learn and adopt takeaways from the Mahabharata in general and Bhishma in particular. Justice is the fundamental objective of all systems of governance (though justice itself could be subjective, differing according to circumstances); justice in a civilised commonwealth depends upon three constituents: the value systems of the realm, the standards of dharma or righteousness, and the emphasis placed upon on the practice of truth. The book’s five chapters are structured accordingly, beginning with the fundamentals, leading to the objective, and finally to the system designed to deliver on the objective.

The discussion of each of these, often inter-dependent, concepts is focused on the individual, the state, and the corporation as a sub-set of the state. To better relate to the reality of the day, a representative (and by no means an exhaustive) collection of cases are included as illustrations. The fact is that each of us (as was the case with Bhishma and all the other characters in the story) is facing situations and taking decisions that seem appropriate under given circumstances. Whether decisions are in line with what they ought to be under such circumstances (within the framework of values, righteousness and truth), only one’s own conscience could judge.

Bhishma’s counsel repeatedly includes admonitions to the king that he should consult his ministers, advisers, elders, and the ‘learned’, and then using his judgement take his own decision. Despite going through the motions of consultations with all these people, the king could take a decision that did not lead to the greatest good for the largest number of people. A telling example is the instance where Dhritharashtra seeks advice from Vidura, Bhishma, Drona, and others with regard to giving the Pandavas back half of their kingdom, but decides against it to suit his personal agenda of retaining the whole kingdom for himself and his son. In modern times, both in governments and corporates, similar situations are not difficult to find!

The story of Bhishma, although predominantly one of greatness, valour and wisdom, has its share of pathos as well, especially in his later phase where it seemed he was just respected but not necessarily heeded. Whether it was during the dice game and the disrobing of Draupadi, or on whether the Pandavas should get back half of their kingdom, his advice fell on deaf ears. Duryodhana in particular was openly disrespectful and even insulting; Karna (who had a poor equation with Bhishma anyway) was increasingly confrontational, and Dhritharashtra became more restive and annoyed. For someone who had sacrificed his kingship and worked so hard to expand and protect the kingdom, such treatment was not warranted. And yet, instances are common in modern-day governments and corporations where similar side-lining and disrespect of senior leaders and directors take place routinely. Wouldn’t it be better for such seniors to step down with dignity rather than suffering such ignominy? Or, like Bhishma, in the larger interests of the country or the company, should they continue to pursue what is best for the constituents?

Notwithstanding the few negatives, overall, the impression Bhishma proffers is one of man of great dignity, forbearance, courage, integrity, justice, and above all, selfless service for a chosen cause. There is much that the present and future generations of leaders can emulate in their respective spheres of activity and influence. This book is a humble effort in that direction.

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The Grand Obfuscation of Secularism

The grand obfuscation of secularism

Most political parties in India profess their commitment to secularism but this routine concern gets added currency during elections. Each party desires to outdo the others to demonstrate to their electorates how deep is their dedication to this cause and they succeed in large measure in defeating the very purpose of protecting the disadvantaged and reinforcing the divide that has been nurtured over centuries, earlier by the British and later by our own political and religious leaders.

There are at least three dimensions to this secularism versus communalism debates: first, the definition of what is actually meant by secularism; second, the methodology of bringing about widespread appreciation and recognition of the imperatives of secularism in a diverse society like ours; and third, the role of inclusivity with equity in perpetuating an ambiance of secularism in the country.

What is secularism?

Secularism in a political discourse has come to mean different things to different people at different times; not unlike beauty lying in the eyes of the beholder. Webster's dictionary defines secularism as "the belief that consideration of the present well-being of mankind should take precedence over religious considerations in civil affairs or public education." in this sense, the concept of secularism applies to all citizens of a country irrespective of their religious beliefs or affiliations. The idea seems to be that one should not be bogged down
by one's own religious constraints or bound by "monastic restrictions" when it comes to matters of worldly (as opposed to spiritual or religious) issues in a society. This also suggests that people are open to follow their religious convictions in their personal life even while adopting a secular approach to worldly matters; and, following John Stuart Mill (in the context of liberty), they can also persuade (but not force) other citizens to change their religious beliefs to their own. This dictum of course relates to people's personal freedoms and accordingly is also subject to the overarching caveat that one's freedom is
constrained to the extent that does not impair another's freedom.

Viewed in this framework, it will be seen that the concept is to reconcile individuals' religious role with their civil role in society characterised by diverse religious and other beliefs and yet united as a civilised nation.

Ringing in Improved Secularist Regimes

Transforming such individual subordination of respective religious or other mandates to the needs of being a civilized citizen in a society is a daunting task that civil governments in every country have to contend with. Citizens will naturally be at varying levels of distinguishing between their religious and civil obligations. Bringing them all (or at least a vast majority of them) to speed towards complete segregation between the two sets of obligations ought to be the objective of the State. It does not help to push only some (often the majority) and ignore the others (mostly the minorities) towards such role separation since it would lead to societal tensions not conducive to peace and harmony. Most
governments wittingly or otherwise get into this trap of exhorting the majority and tolerating the minorities in achieving such role-clarification, often leading to charges of appeasement.

Civil obligations are fairly well known but it is the containment of religious mandates that is
more difficult. Religious leaders and scholars can help in promoting their religious beliefs
but also encouraging their flock to see where their religious duties end (clearly at a
personal level) and where their civil obligations begin. One could see this distinction being successfully achieved in many developed countries where in England, for example, the Church is clearly separated from the "Crown" but obviously this role clarification did not come easily and without cost. (Clearly, in case of some religious beliefs this is not easy.) We need to progress in this direction. One possibility is to disqualify identified religious heads from political office or representation. And prohibit those in, or aspiring for, such positions from bringing religious beliefs or issues in their civil discourse. A tall order? Maybe, but certainly worth trying.

Inclusivity and secularism

Why such role clarifications are so difficult to achieve? Obviously, intolerance is the first reason. While every religion is concerned with the upliftment of it's followers, some believe in their exclusive supremacy over other beliefs and actively denigrate them. While such promotion may have been necessary and even justified in the early stages of development, now that most religions have reached much more than their critical mass for sustenance, such behavior may have little to commend itself.

The second and more pressing reason coming in the way of better role appreciation between religious and civil obligations is the glaring fact that some part of the citizenry is less prosperous and well to do than the rest. There are clearly legacy factors contributing to such uneven development in societies. The enduring solution to this problem will be for the state to act as enabler and provide appropriate educational and capacity building opportunities. Inclusive development of all sections of the people is the most fundamental requirement for societal cohesion. Any government or political party which over a reasonable period of time, say twenty or twenty five years, has not been able to achieve a
demonstrable measure of progress in this field must accept complete responsibility for failure and even offer to vacate office in favor of others who may claim to have the ability to deliver.

While these efforts are in pursuit, affirmative action to provide protectionist opportunities to the economically weaker sections of the society will be legitimate and appropriate. Two concomitant conditions need to be recognized, however: first, such protection must be for a pre-determined period of time, say fifteen to twenty years (this would put back pressure on the governments as well to perform in creating enabling opportunities and capacity building failing which they would stand to lose their political support); and second, they should clearly be based on material and economic criteria. Even if a large proportion

of any religious or other caste segments are economically backward, affirmative actions should be related to such backwardness and not predicated upon the religion or caste. This is an area where successive governments have failed the nation. The result is the perpetuation of religious and casteist classifications, weakening any effort on their part to simultaneously develop their civil identities and play their due role in the material development not only of themselves but also of the country.

Next Steps

If the political parties do not pay heed ( since clearly it is in their interests to keep people in silos of illiteracy and economic dependence), it will be up to the people and thought leaders, not to mention saner religious voices, to bring about a silent democratic transformation. Indian democracy has proved resilient over the last sixty plus years, despite divisive and inimical political leadership; the question is whether it will have the strength to overcome the larger challenges of religious beliefs and the influential religious leaders and scholars whose single point agenda seems to be the preservation of religious identities to the exclusion of civil identities. Time alone will tell.

Executive Primacy in Corporate Governance

The Case of Jindal Steel and Power

Corporate governance literature is replete with debates on board and shareholder primacy: in countries with predominantly concentrated ownership and management control structures, a third claimant also needs to contended with: the executive management, which is part-principal (because they are the dominant shareholders) and part-agent (because they are managers running the day to day business). There is an influential school of thought that believes in shareholder primacy on key directional matters relating to their corporations, with boards serving their interests within the overall framework set out in their charters, with the right to intervene to dictate course corrections when they deem it necessary. The opposing camp is convinced that the shareholders’ job is to elect a slate of directors and thereafter it is that board which assumes primacy in running the business in the best interests of the company and its shareholders without any interventions; and it is the board in fact that would decide what is good for the shareholders say for example in a takeover situation and advise them accordingly to accept or reject the offer.

We now compound the situation by introducing a third claimant, a hybrid of both shareholders and the board. When some shareholders (usually referred to as promoters in India since often they are the initiators of the business and its corporatization) assume operational control as well of the corporation, they seek to usurp primacy from the board as well as the general body of shareholders! The rest of the board in that event has the onerous task of protecting the other shareholders’ interests not just from the traditionally ‘greedy’ managers but from a powerful group of managers masquerading as shareholders when it suits them!

It is in this backdrop that the case of Jindal Steel and Power (JSP) in 2012 is discussed here.  JSP, a listed company with a market capitalization of some R.s 40,000 crores had a consolidated sales revenue of Rs. 18350 crores and net profit of Rs. 2100 crores. The Jindal family owned some 58.97% of the voting equity, with institutional investors and others owning the rest. Naveen Jindal, the chairman and managing directors of the company had his board delegate to him the authority to determine the compensation of all whole time directors, by whatever name called, and the resolution came up to the members’ generl meeting on 26^th September, 2012 where it was passed , on a poll, with “the requisite majority.” (For more details, please see an earlier post titled, Can the Board delegate any of its core functions?). Passing of this resolution was by itself no surprise since the Jindal family had more than a majority of votes to carry it through; what it brings up for debate again is the issue of how far is it fair for any shareholder to vote on  a resolution at a shareholders’ meeting when he or she was an interested party in the decision, as was the case here. Naveen Jindal’s remuneration for the year was a staggering Rs. 73.5 crores, reportedly the highest paid to any corporate CEO. The next highest pay in the company was Rs. 2.78 crores to the Group Vice Chairman. On a peer comparison, Tata Steel with roughly four times JSPL’s net profits paid its CEO Rs. 6.5crores in the same period.

How doe address some of these developments in corporate behavior in India especially bearing upon the (ab)use of dominant or majority voting power of controlling shareholders at general meetings even in respect of matters where they or their representatives are beneficiaries? Can the institution of independent directors provide some solutions and what we can do to enable that institution to be more potent than Is the case at present?

Several measures have been suggested and are possible to restore a semblance of credibility and trust in the corporate format of business organization. For this some key enablers are required to strengthen the board systems and to bring in greater equity to members’ meetings. Some of these are:

·        Contrary to the mistaken belief that the institution of independent directors is incapable of delivering to its potential and expectations, it certainly can if it is invited by enlightened promoters, and even in case of others less convinced if it is appropriately enabled. At present, regulations inflict the institution of independent directors on listed  companies (and soon many others as well if the Companies Bill awaiting parliamentary approval becomes law), but after that there is no attempt to make it work effectively. For example, a board meeting could be duly held and critical decision taken without  any independent director being present so long as the requisite (usually small) number of other non-independent directors is present. Similarly, even when some independent directors are present, a meeting with more non-independent directors could overrule and approve resolutions by a majority. In either case, the institution of independent directors, even if competent and willing is frustrated in achieving its objectives. Two simple initiatives could help in remedying this situation:

o   Modify the quorum requirements of a duly constituted board meeting to require the presence of a majority of the independent directors on the board

o   For decisions on key matters (to be prescribed), require not only a majority of votes cast at the meeting but a majority as well of affirmative votes of the total number of independent directors on the board (and not just of those attending). This would ensure that no decisions of major import are approved without the independent directors having been provided an opportunity to exercise their objective judgement on such matters in the overall interests of the company and its shareholders 

·        The second initiative would address the voting regime at members’ meetings.

o   Amend the Companies Act to provide that notwithstanding any other provision in the Act, interested shareholders’ voting rights at general meetings of members will be restrained in case of resolutions where they or their relatives or associates are concerned or stand to benefit; then define “interested parties exhaustively to include close family, associates, partners and entities over which they have control or substantial influence

 It is the established norm that all shareholders in a class enjoy equality of treatment in voting in proportion to their shareholdings. But, when the consequences of certain proposals before the members negatively impact some of them but not others, or when the proposals are in the nature of material related party transactions between the company on the one hand and some shareholders or their representatives and associates, where they become interested parties, then equity demands that such “interested” shareholders abstain from voting on such resolutions leaving them to be decided upon by the other shareholders. Some of the transactions that would be covered by this initiative would be issues like acquisition or merger of group subsidiaries or affiliates with the parent (as was the case with Satyam not too long ago), material contracts with firms where the interested shareholders are beneficiaries, appointments of interested shareholders or their relatives and associates as directors or senior executives and fixing of their compensation, and so on. As an example, if such a provision was in place, it is doubtful if JSPL’s resolutions as indicated earlier and their CEO’s compensation would have been approved because as interested parties, their 58.97% shareholding would not have counted and if a majority of the rest did not like the proposals, they would have been rejected.

This concept of interested shareholders and the need to restrain their voting power at general meetings of members on matters where they stood to benefit was mooted more than a decade ago in a government appointed committee report submitted in 2000 (and certainly safely archived in the records of the Ministry of Corporate Affairs, but still remembered because the present author happened to be the drafting member of that committee!) but nothing much was heard since then despite representations to various committees on corporate governance and law reforms. Finally, the Irani Committee in 2005 accepted it as a good corporate governance practice but stopped short of recommending legislation. In 2011, SEBI belatedly took cognizance of the value of such a measure and recommended to the government to incorporate it suitably in the pending Companies Bill, but one will have to await the 2012 version of the bill when it is introduced in parliament.

Around the world, executive compensation has been and continues to be an emotive issue. More and more regulatory discipline is being imposed on corporations whose boards and compensation committees are required to explain their compensation policies and how the proposed compensation packages of their top executives have been computed and justified. From an advisory say-on-pay movement in the US that began a few years ago in the wake of reactive legislation in the US, countries like the UK have moved to mandatory voting by shareholders on executive pay. Of course, none of them have thought fit to constrain “interested shareholders” from voting on their own pay proposals mainly because both in the US and the UK, concentrated dominant ownership and control of corporations are not as widely prevalent as in countries like India. The special circumstances relating to ownership and control in India therefore call for special provisions to ensure fair play and accountability. One hopes such measures would be brought in sooner or later because these will be the principal building blocks of trust and confidence in India as a preferred investment destination.

Can the Board Delegate any of its Core Functions?

The Case of Jindal Steel and Power

On the 26^th September 2012, the annual general meeting of members of Jindal Steel and Power Ltd (JSPL), a listed company with a market capitalization of some Rs. 40,000 crores, approved “with requisite majority” an ordinary resolution (among others) enabling the company’s promoter chairman and managing director, Naveen Jindal to approve from time to time the remuneration of all whole time directors (including his own since as managing director he qualifies as a whole time director). As a matter of collateral interest, the annual compensation of the CMD was some Rs 73.5 crores, reportedly the highest CEO pay in the country (comparatively, industry peer Tata Steel with a net profit of some Rs. 8,000 crores (roughly four times JSPL’s figure of a little over Rs. 2100 crores paid its CEO some Rs. 6.5 crores in the same period). 

According to a company filing dated 29^th September 2012 (accessed from the company’s web site), seventeen persons including proxies representing the promoter group and twelve persons including seven proxies representing 299 shareholders (out of 130,000 plus shareholders in all) were present at the meeting held at the registered office of the company at Hisar, the family’s ancestral city with a population of around three hundred thousand in the Northwestern state of Haryana, some 160 KM west of New Delhi. The company’s consolidated revenues for the year ended 31 March 2012 were Rs. 18,350 crores (previous year Rs. 13,193 crores).

In thousands of publicly listed corporations around India (and probably elsewhere), this farcical manifestation of corporate democracy is played out with all the accompanying trappings: a chairman’s speech, reading of the auditor’s reports, approving financials, “electing” directors and so on. Of course, there is enough scope for those so inclined (usually for want of anything more worthwhile) to make flattering speeches (in the hope of collecting some crumbs of favours later on) or asking “difficult” questions (if only to prove their forensic skills were second to none). At the end of the day, amidst the reverberations of “your company” and “your directors” from the dais, the meetings are closed with the directors having stoically borne their annual day of reckoning without much damage and get on to business as usual until the following year.

Was there anything unique then about the Hisar meeting? Indeed yes. Probably for the first time in recent Indian corporate history, a record of sorts was made there that arguably challenged many canons of corporate behavior, responsibility and ethics. Let us consider the resolution in question (according to the notice, the board of directors had commended all proposed resolutions to the s including this one to the shareholders for approval). [Author’s italicized comments in square parentheses}

“Resolved that … Chairman and Managing Director of the Company be and is hereby authorised to revise, from time to time, remuneration of Wholetime Directors of the Company, by whatever designation they are called, by way of annual increments or otherwise.

[Could this be construed to permit more than one such revision in a year?]

“Resolved further that the increase in remuneration in case of each such Wholetime Director, at every time, should not exceed 100% of their respective Cost to Company (CTC) immediately before the revision.

 [Thank God, but since more than one revision in a year is permitted, and for example, if there were to be quarterly revisions at the maximum 100%, the annual impact might be a staggering 1600% of the year-beginning cost to company!]

“Resolved  further that where in any financial year during the currency of tenure of such Wholetime Directors, the Company has no profits or its profits are inadequate, the Company will pay remuneration by way of basic salary, performance based target variable pay, benefits, perquisites, allowances, reimbursements and facilities as determined in the above mentioned manner.”

[What this means is whether or not the company makes enough profits, executive compensation to whole time directors including the managing director will continue regardless, without let or hindrance!}

Three issues (at least) come up for discussion: first, could the board approve a delegation of one of its fundamental functions to someone else and commend it for shareholder approval; second, assuming there is no question that the expression “whole time director” in the resolution would for this purpose include the whole time managing director as well, is it fair and equitable for an individual, howsoever objective he or she might be, to set his or her own compensation; and third, given this action is in the nature of a related party transaction in respect of his own remuneration, and in respect of other whole time directors, he is vested with a beneficial authority that enhances his personal sway and influence over other whole time directors, should the promoter be allowed to vote on this resolution at the general meeting.

Let us however consider the following:

Ø  An elementary principle of corporate governance is the recognition of goal-incongruence between the shareholders (principals) and the executive (agents) in terms of respective interests; the board, as trustees of all shareholders (especially the absentee shareholders since the controlling shareholders being present on the scene could rationally be expected to take care of their own interests), are obligated to oversee and mitigate any such material expropriation by the executive of any created wealth and all wealth-creating assets to the detriment of shareholders. Executive compensation is a material source of such potential undue diversion of funds and resources and hence around the world, if anything, oversight and control mechanisms to reign in executive compensation are being strengthened by legislation as well as listing regulations. In such an environment, does the board have within its jurisdiction, legally and ethically, the power to delegate such an important fiduciary duty and especially to the executive itself whose actions it is supposed to oversee?

Ø   If there is a Compensation Committee the onus of determining compensation numbers is vested in that committee which in best practice should comprise of a majority, if not wholly, of independent directors. In the absence of a Compensation Committee (in any case the JSPL Compensation Committee is reportedly only for deciding stock options!), it would follow the whole board and especially its independent directors would have that responsibility. Vesting that crucial authority to someone else and especially to the managing director of the company who in that capacity is equivalent to a whole time executive director would, arguably, seem to border on abdication, and not delegation of a fundamental responsibility. It would be interesting to ascertain how many of the independent directors were present at the meeting approving this resolution and how were they convinced they were serving the interests of all shareholders in approving this resolution.  Equally, it would be interesting to find out whether any of the directors dissented with this resolution at the board meeting and whether such dissent was asked to be recorded in the board minutes.

Ø  While a person being allowed to determine his own compensation and hold the board accountable because he was acting within the authority granted to him by the board, is thus repugnant to even the minimum requirements in equity and fairness in any legal regime, the authority so granted in respect of other whole time directors is equally bad in concept. What can quite easily be overlooked in such situations is the underlying reality that whole time directors have a dual role to play with distinctly different responsibilities and accountability. As employees of the company, they are subordinate to the CEO or Managing Director but as directors, they are not subordinates but equal members on the board. Their accountability in their role as directors is to the board, the company and to all the shareholders. Because they are part of executive management and as such are broad brushed together as “agents” with incongruent goals likely militating against the interests of shareholders, it is the duty of the board (and its Compensation Committee) to exercise oversight control over them and their remuneration. As it is, it is extremely difficult at a personal level for subordinate executives to express any view not in conformity with the views of their hierarchical executive chief at board meetings but to have their compensation also being decided by such a chief without scope for any role for the board cannot but compound their problems and make them virtually just numbers at meetings for purposes of required  support and votes to ensure the “party line” is strongly represented numerically (since the extent of shareholdings does not add weightage to the individual directors at board meetings.)

Ø  But this handicap is removed when matters go to the general meetings of members where each shareholder’s vote has a weightage proportionate to the size of his/ her shareholdings. In a sense, this concept of weighted votes in members meetings has been justified on grounds of the differential equity risks such shareholders undertake. (It has not always been so however, and this convention has evolved over time but that is a story by itself). The issue of relevance to this discussion however is whether exercise of votes by persons who are parties to, and beneficiaries of decisions at the meeting, is legitimate and equitable. As the law of the land stands today, there is no question about their legality. But it is not difficult to see how those with substantial voting power (not necessarily majority voting power because not the full complement of shareholders representing all the 100% of votes can ever be present at these meetings) and suitable connections to influence some block holders like financial institutions can get their way at these general meetings even if it meant they were the beneficiaries to the exclusion or detriment of some or all the other shareholders. In the case of JSPL, it is not surprising that the promoter group with 58.97 % of the company’s equity would not, and did not have any difficulty in having the resolution approved by the required majority. Unlike other resolutions, this particular resolution was not passed, as is usual in most cases in such meetings, by “show of hands” but on a poll even though the result was a foregone conclusion with the promoter group voting in its favour. There is no information in public domain as to whether any or all of the institutional shareholders who held 28.20 % of the equity exercised their franchise against the resolution if only to register their protest.

Is this the kind of corporate governance that this country should be delighted with? Is this the manner in which independent directors ought to be protecting the interests of the shareholders not in operational control? Does the regulatory responsibility cease with forcing such independent directors on companies, whether they like it or not? These and other related questions will be addressed in another forthcoming post.

Public Discussion and Parliament Sanctity

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N Balasubramanian

In keeping with our heritage of being ‘argumentative Indians,” there is an ongoing debate in the media as to whether parliament (especially when it is session) has been “insulted” by the presence and participation of some key parliamentarians belonging to the opposition parties at Anna Hazare’s one-day token fast event at Jantar Mantar in Delhi on the 11^th December 2011, reiterating his demand for a strong Lokpal legislation.

Clearly, established conventions do frown upon policy announcements by the government or its ministers and spokespersons outside of parliament when it is in session since it impinges on parliamentary privilege. Since other members of parliament can in no way make any official policy pronouncements on behalf of the government, no parliamentary privilege can conceivably be breached by their expressing themselves one way or another. Outside of parliament, shouldn’t parliamentarians be seen, accepted and treated like any other ordinary citizen of the country (except as constrained by conventions indicated) including the freedom of assembly, expression and peaceful protest?

The next issue is the choice of the forum for the exercise of such rights. Very few people seem to consider appearing on national media to participate in discussions on various issues even while parliament is in session. Strangely, spokespersons of the ruling parties including even some ministers do regularly appear on these debate shows and obviously do not see any parliamentary insult or impropriety in such appearances. In effect, are they not expressing their views and indeed often the views of their parties on matters under discussion in parliament? If such participation dies not adversely impact upon the stature and sanctity of parliament, why should airing such views in a public meeting be considered injurious to parliament’s august personality as a revered institution? Of late, several parliamentarians appearing on such shows in recent times seem to have developed a newfound respect for parliamentary privilege – they make the usual disclaimers and overly protest on their inability to divulge any details of proceedings in committees and so on before going on to disclose the substance of such discussions albeit shrouding them in bikini idiom – that is revealing more than they conceal!

Writing in the print media on the same lines also falls in to a similar category. In common with the electronic media exposures, those articulating their views in writing also are addressing an audience (hopefully large) on matters concurrently under discussion in parliament without any qualms of intruding into the domain of parliamentary privilege.

So, what’s it that makes physical gatherings of people different? Why should people find it unacceptable behavior on the part of parliamentarians who chose to share Anna Hazare’s podium? A particularly inane reason offered is that only parliament can legislate and therefore all these views should be expressed only in parliament! Nobody is saying that others can also legislate (thank God!) in addition to or in lieu of parliament. But liberty of the individual can certainly find expression in many ways including participation in such open debates and meetings so as to mobilise public opinion and pressure government to consider and incorporate whatever it feels comfortable with in its draft legislation for discussion in parliament.

The second reason offered is that no one can dictate to parliament or the “elected” government on what and how to legislate. Who can indeed dictate to parliament except the citizens at large when voting in elections? It is fallacious to argue that in between two elections, citizens forego their right to draw government’s and parliament’s attention to matters they consider cannot wait till another election. Expressions of this nature through the media and public meetings can be polite, persuasive and often (as happens in oratorical rhetoric) terse and peremptory but that by itself cannot be called dictating for the simple reason that as we noted before, nobody indeed can dictate in a democracy except the people themselves.

The third and perhaps the worst dysfunctional argument is that after all it is only a parliamentary committee’s recommendations that parliament as the supreme body can and will do what it thinks appropriate. It is strange that a committee’s report should be treated with such scant respect by the parent body notwithstanding the substantial dissent within the committee on the matter.  I am reminded of a brilliant in-house general counsel colleague who would refer matters from time to time for expert legal advice to eminent lawyers outside and when such advice was received would invariably reject the counsel with good arguments of his own and recommend his preferred course of action! An exasperated boss would ask him why at all he referred such matters to outside counsel at enormous cost in terms of time and money if at the end such advice was not to be heeded, my colleague would respond that procedurally that was the thing to do in important matters for after all, who knew, in some instance the external advice may be so good as to warrant acceptance internally! Referring to parliamentary committees should not degenerate in to such procedural niceties with little or no intention to consider their recommendations in an unbiased manner.

In democracy, parliament is indeed intended to be the supreme body reflecting at all times the diverse views of the people its members seek to represent. Parliamentarians cannot afford to shut themselves up in an insulated sound-proofed edifice to an extent that, like the three good old monkeys, they cannot see, hear or talk to the people who elected them in the first place. If they think some civil society teams (like Anna Hazare’s) do not reflect the opinion of a vast number of other citizens, they should demonstrate the basis for their conclusion. Why couldn’t MPs for example visit their constituencies to ascertain the general feelings of the people they represent and convey to their party chiefs who can aggregate the inputs and reach a conclusion that is not based on the views of a party ideologue or a coterie of experts from within but rather on the feedback from the grassroots which ultimately sustain the superstructure of the plant or the tree. The analogy to party high commands is strikingly close!

Would this be the ultimate panacea for all such knotty problems? I would love to think so ideally, but I hate to concede the reality may still be different so long as electoral reforms and intraparty democracy are not in place.  

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The Primacy Question - Party or Parliamentarians?

Innocent Frauds in Democracy

The Primacy Question: Party or Parliamentarians? 

Prof N Balasubramanian

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A country’s citizens do often nurture an apparently legitimate aspiration that since they elect their representatives to the parliament or state legislatures or even municipal corporations, they have a right to call them to account for their behavior and performance in the House. In fact, there is an increasing demand from civil society that the citizens should also have a right to recall should they feel their representative was not representing their interests and not keeping any pre-poll promises he or she may have made. In theory, this is perfectly valid since, following an agent-principal approach, the masters (people) could always ask their agents (parliamentarians) to do whatever they (as expressed by a majority) wish them to do – either represent or resign. But there are some conceptual issues that need sorting out before this salutary best-practice could be brought in through electoral reforms.  These can broadly be categorised under two headings: issues relating to the representative credentials of the parliamentarians; and those concerning the interdependencies between parliamentarians and their parties (where they belong to one). Some possible solutions for consideration and discussion on how to overcome some of these hurdles are also proffered.

On the “Representative” Credentials of Parliamentarians

A simple process of arithmetic is all that is required to dispute the claim that elected parliamentarians are truly representative of their electorate. Out of the country’s total population, those eligible to vote under our adult franchise system constitute roughly fifty percent, allowing for exclusions on account largely of the qualifying age of eighteen. Of those eligible to vote, not all do; the median voter turnout is placed in the range of between forty and sixty percent. For our calculation, let’s settle on 50%. That works out at best to 25% of the people of the country the parliamentarians could in the aggregate represent. Thanks to our fragmented party formations, compounded by the proliferation of “regional” parties and independents (what are they independent of is a question mark!), experience shows that no more than thirty to forty percent of polled votes are required to win an election. This translates to something like 7.5% to 10.0% of the constituency’s population to be elected as its representative. So much for the representative character of our elected parliamentarians and legislators!

How do we correct this anomalous situation? Several options have been suggested: first, make voting mandatory – but the problem is how do we handle hundreds of thousands who may yet not go out  to vote for whatever reason: old age, sickness, outstation, fear, and so on; second, changeover to proportional representation, a single transferable vote system where the votes polled by the least-polling candidate is transferred to another based on voter’s preference iteratively till a winning candidate gets all the votes where he or she has been preferred second, third and so on – the problem here is several fold: given the too numerous candidates standing for election in most constituencies, the transfer process will be excruciatingly slow and cumbersome, but even more importantly, in a land of widespread illiteracy where candidates have to be allotted unique symbols for illiterate people to identify them, implementing a reasonably fool-proof system of getting the voters not only to put a stamp on just one candidate of their choice but also to mark their preferences in descending order on other symbols as well will be a herculean, if not virtually impossible task; and third, penalise people failing to vote without sufficient cause  rather than mandate compulsory voting, through measures such as denying or delaying issue of passports, driving licences, reservation privileges,  grant of industrial licenses and subsidies, and such other actions, establishing a more concrete linkage between a citizen’s rights and obligations.

Concomitantly, there is a pressing need to ensure that “wrong” people do not get elected even if in the process some “right” candidates also suffer the consequences. For example, every voter must have an option of rejecting all the candidates in an election if none of them measure up to the expectations. Not only this, but if 50% or more of the votes polled favour such rejection, that particular election should be declared void and a reelection ordered, with the provision that none of the candidates in the impugned election would be eligible to stand again from that or any other constituency in India for a period of five years equivalent to the full term of an elected representative. This might at first sight seem harsh and also an expensive proposition but the benefits should far outweigh such reservations. In due course, it would also ensure a movement towards better discipline among intending parliamentarians to establish a credible base and a measure of political acceptability in their constituency, and discourage bogus and dummy candidates often fielded with ulterior motives of dividing the votes and so on.

On Parties and Persons

 The second issue in elections is the question of which is the entity that people are asked to elect. Candidates (except independents) belong to parties and are associated with the policies propounded by the party manifestoes or poll promises. It is not unusual that right people are in wrong parties and right parties field wrong persons as their candidates. In such cases how should the voter decide to cast his or her vote? This issue becomes even more relevant when we talk about “recalling” an elected member midway through his or her term. Once a candidate is elected on a party platform, he or she is virtually a bonded slave to the party leadership in terms of policy decisions. Such a parliamentarian becomes a non-entity and only counts a one vote in case of a division in parliament. The notorious institution of “whip” which undoubtedly suits the party bosses ensures that the member votes in line with the party position on pain of disciplinary action. Even if the member wishes to represent a differing view (hopefully representative of the general feeling in his constituency) he or she cannot possibly go against the party whip. This unenviable position came to the fore in recent controversies on the Jan Lokpal draft legislation when some of the ministers in the negotiating team had to hold the party line even though their constituents appeared to hold a different view.

Party Primacy

The moot question is whether a voter is electing a candidate or electing a party. If the party is supreme and the persons elected at such expense and effort are only dummies once they reach the legislature, it may be reasonable to argue whether it would not be better to elect parties based on their poll platforms and prospectuses rather than individuals however qualified they might be. In this scenario, the voters would be asked to choose a party of their preference, one for the Centre and one for the state, and the party getting the highest number of votes would be entitled to a seat from that constituency in the legislature. And in the aggregate, the party winning the largest number of such constituency seats will be entitled to form the government at the Centre or the state. The party will then appoint its council of executive ministers and the other parties would depending upon their seats nominate people to represent their party. Each party can be asked to nominate a small council of no more than say three of their nominees in each constituency to act as a bridge between the government and the people.

Does this sound a reasonable alternative to the present day situation? On the positive side, gone will be the wasted time effort and money on “selecting” candidates, electioneering individually (consider the air trips of top leaders to support candidates at various locations, just as an example!), the expensive (and eventually meaningless debates in parliament and state legislatures), the costs of thousands of parliamentarians’ personal establishments (including housing,  security personnel and administrative staff), elimination or at least considerable diminution of thousands of power centres of influence and potential corruption in the country,   and of course the frustrating time delays in getting things done at the government level. (I am tempted to call this “reengineering” government in a manner that may benefit more efficient and effective governance!).

On the negative side, one would lose the charms of oratory excellence one often witnesses in such debates, and for which the “mother of parliaments” was and is so famous. But unlike the Westminster and Capitol Hill models with an essentially two party scenario and a comprehensive structure of primaries and so on, India is struggling with far too many parties, most of which are region or personality centric, and voting population that, largely being poor and illiterate, is still grappling with problems of maturation as a democratic nation. There are of course significant signs of inherent wisdom in the Indian electorate as demonstrated several times and in several instances, toppling great names and resurrecting older greats from time to time. But once parliamentarians are elected, however inadequately or unrepresentatively, the people who supposedly chose them cease to have any power of control over their actions or inactions in the present dispensation; and that is a tragedy which tends to materially impair the potency of our democratic institutions.

But this package of reforms is fraught with considerable danger to democracy itself unless it is concurrently circumscribed by several disciplinary rules. A short list would include:

ü  Very strict rules of governance will have to be prescribed and enforced to ensure inner party democracy; an organization which cannot meet democratic principles internally can hardly be trusted to respect or deliver on such requirements at a government level

ü   There should be complete transparency, accounting and disclosure/reporting on matters relating to funding, membership, conflicted interests, and so on

ü  Each national or regional party should be required to disclose their choice of core members of the cabinet (not exceeding fifteen in case of the Centre and ten in case of a state) with disclosures as to their education, experience, expertise, public service, immediate family members and complete details of their and their immediate families’ wealth and sources of income, and details of any litigation – civil or criminal – whether closed or continuing, whether under inquiry or prosecution. Any material change in any of these details should be dynamically disclosed as they happen until the end of the term of the legislature, whether they happen to be in government or in opposition

ü  No member of the government or members of parliament representing other parties in parliament or state legislatures should be allowed to be in business or professional occupations during their term of office. They should devote their full, or substantially full time to the affairs of the state and their political parties, the latter in non-executive capacities. They should not associate with any other organization or entity (such as sports bodies and other social and apparently not-for-profit organisations as many politicians do at present) during their tenure of office in government or parliament. They should be adequately and attractively compensated by the government at disclosed rates and their compensation and other terms should be periodically reviewed and decided upon by a collegium of constitutional authorities

ü  If there are any conflicts of interest in respect of ministers’ and parliament nominees’ family members, they should be disclosed and the persons concerned should abstain from participation and voting on such matters, nor should they have access to policy papers relating to such issues

ü  The bureaucracy should take oaths of allegiance to the Constitution and should be open to disciplinary and judicial action in case of failure to act in the best interests of the country; there is no point in having an expensive administrative machinery if they do not apply their minds and simply follow instructions of the ministers or party functionaries for the time being in power.

ü  There should be a well-publicised Code of Conduct in Public Life that parliamentarians in government and opposition as well as bureaucracy must buy into and sign off on. Any complaints of deviation or breach should be open to investigation and reporting by a duly empowered Lokpal and actioned subject to judicial review by the Supreme Court

ü  To qualify as a national party, the party should have secured majority votes/seats in the preceding general election in at least one of the states (other than Union Territories) in at least three out of the five (north, east, south, west and central) regions; in case of new national parties, the party should have been incorporated at least two years before the general elections, conformed to all the governance requirements prescribed for older parties, and willing to field candidates for at least two thirds of the constituencies in their chosen states (other than Union Territories) in at least three regions of the country.

ü  Similarly, to qualify as a regional party, the party should have secured majority votes/seats in the preceding general election in at least one fourth of the constituencies in at least one of the states in any of the five (north, east, south, west and central) regions; in case of new regional parties, the party should have been incorporated at least two years before the general elections, conformed to all the governance requirements prescribed for older parties, and willing to field candidates for at least two thirds of the constituencies in their chosen states or Union Territories

Person Primacy

If these changes ushering in party primacy are considered too radical or impractical at this stage and one would rather stick to the concept of person primacy, how can we strengthen the present dispensation to make it a more potent instrument for reflecting peoples’ views and aspirations on a continuing basis? Here is some food for thought:

ü  Focus on the individual candidate rather than the party to which he or she belongs. Discontinue the party symbols in ballot papers and instead allot symbols (still necessary to overcome illiteracy related issues) to individuals

ü  Apply all criteria relating to disclosure of candidate information as set out earlier

ü  Ask each candidate to issue a pre-poll prospectus (which may be the same for all candidates belonging to a political party) setting out what his or her charter would be if elected. Definitely avoid any party affiliations or symbols linking the individual to any party.

ü  Ask each candidate to disclose his party affiliation in terms of his prospectuses which he or she cannot modify during tenure of office on pain of losing his or her seat

ü  Institute all the reforms regarding options for rejecting all candidates etc., discussed earlier

ü  To ensure more meaningful reflection of representation, prescribe two thirds of the votes polled as the criteria for winning  an election

ü  To avoid frivolous candidates, prescribe a cooling off-building up period equal to one full term of five years for those failing to get at least ten percent of the votes polled in a constituency, during which the candidate may not contest an election from any constituency anywhere in the country

ü  Once declared elected, the candidate should be barred from joining or crossing over to any other formation or party in the legislature unless such movement in concert is based on pre-poll agreements between the parties and is fully disclosed to the electorate. Any post-poll changes in affiliation violates then basis of winning the election and should be declared void and the parliamentarian should forfeit his or her seat. As a further measure of restraint, such candidates  should also be disqualified from contesting in any election for a full term of five years

ü  Abolish (with limited exceptions) the “Whip” system in parliament and state legislatures. There should be no restraint on individual members who are representatives of the people of different constituencies to vote on motions according to their conviction in line with the promises they made to the people at the time of election. The exceptions to this general principle should cover matters relating to national security, foreign affairs, defence and armed forces, fiscal matters including budgets, and such other subjects of national priority and importance

ü  Abolish post-poll coalitions among parties to form governments since such arrangements do not have the sanction of the people who elected them on the basis of their prospectuses.

ü  Abolish Common Minimum Programmes and such other acts of convenience and political expediency since they involve dropping some of the promises made to the people which formed the basis of the election. People have not delegated the right to their elected representatives to alter the charter on which they were elected without first getting back to them for a reconfirmation

ü  In addition to broad policy issues covered by party prospectuses, each candidate at a personal level should commit to the constituency in his or her pre-poll promises what he or she would do for the constituency if elected. Failure to fulfill such promises should be sufficient cause for disqualification in subsequent elections