NSE Corporate Governance

Economic reforms in India in the early 1990s engendered a more express need for corporate governance. And there was no better place than the National Stock Exchange (NSE) to ensure this. By promoting transparency, setting listing and disclosure standards, monitoring compliance and discouraging irregular practices NSE has contributed to improving governance standards of Indian corporates

Corporate governance is an overarching principle of running a company with fairness, transparency and accountability. It is the grand umbrella of systems and processes that ensure a company is governed keeping all stakeholders in mind, not just the shareholders.

Simply put, good corporate governance is good business. Over and above the prime goal of protecting shareholder interest, the nuts and bolts of running an ethically committed business involve adequate disclosures and effective decision-making, transparency in business transactions, and statutory and legal compliances. It is not about just a few aspects of managing a company, or monitoring its performance. Good governance is central to a company’s functioning and it directs every aspect in its lifecycle: right from its inception to every action that its management takes.

Studies of corporate governance practices across several countries conducted by the Asian Development Bank (ADB), International Monetary Fund (IMF), Organization for Economic Cooperation and Development (OECD) and the World Bank reveal that there is no single model of good corporate governance that is ideal in all jurisdictions. Because legal, institutional and traditional frameworks differ across countries, their approaches to corporate governance also differ, but by and large, they recognise the three basic types of corporate responsibility—political, social and economic 

 

For corporate governance to be effective, there is a need for continuous review and global benchmarking of its standards. It is not just the letter but the spirit of compliance that is paramount. Although the ‘spirit of compliance’ is a somewhat abstract concept, it is given meaning and substance by practices established by progressive corporates”
— Chitra Ramkrishna, 
Joint Managing Director, 
NSE and Managing Director & 
Chief Executive Officer, NSCCL

Corporate governance is the collective responsibility of each of the three pillars of an enterprise—the board of directors, shareholders and management. The board is accountable to the stakeholders, controls the management and sets the firm’s strategic aim and financial goals and oversees their implementation. The shareholders appoint the directors and auditors and hold the board accountable for the company’s proper governance. The management transforms the vision of the shareholders into business success. When all of this happens in the general atmosphere of integrity, fairness, transparency and accountability, it reflects good corporate governance. Such governance comes from a clear code of ethics, an independent and skilled board that meets regularly, constant monitoring, honest reporting and stringent auditing.

Economic reforms of the 1990s engendered a more express need for corporate governance in India. That was also the time that England’s Financial Reporting Council and the London Stock Exchange set up the renowned Cadbury Committee to go into the financial aspects of corporate governance. In its now world famous report, the committee viewed corporate governance as ‘a system of checks and balances covering the shareholders, directors, employees, auditor and the management’. It encourages best management practices, honest compliance, high ethical standards and greater social responsibility for the sustainable development of all stakeholders.

And, what better place than the National Stock Exchange (NSE), to ensure just that. The large number of companies listed on NSE, in some sense, collectively represent the aspirations and responsibilities of the bulk of the Indian business world. By promoting transparency, setting listing and disclosure standards, monitoring compliance, and discouraging irregular practices NSE has contributed to improving governance standards of the Indian corporates. This has helped NSE build its ‘reputational capital’.
“For corporate governance to be effective, there is a need for continuous review and global benchmarking of its standards. It is not just the letter but the spirit of compliance that is paramount. Although the ‘spirit of compliance’ is a somewhat abstract concept, it is given meaning and substance by practices established by progressive corporates,” said Chitra Ramkrishna, Joint Managing Director at NSE, in the preface to an NSE document on corporate governance released recently. 

 

We bank on our understanding of this market, and aim to take this knowledge across the nation’s population. Once they understand the benefits of financial markets, they will benefit from the infrastructure that has been created over a period of time. It means that we need to take the premium benefit to every single prospective investor in the country and allow them to enjoy the benefits of investment ”
— Ravi Narain, 
Managing Director, NSE

Just as a series of catastrophic financial frauds in England had spurred the London Stock Exchange to set up the Cadbury Committee in 1991, the NSE decided to analyse the decade of 2000-2010 with a comprehensive academic exercise on corporate governance. Its report, ‘Corporate Governance: an Emerging Scenario’ is a collection of 15 prime essays by domain experts, practitioners, academics and policy makers. The essays in the report set the perspective right by talking about the corporate format, the people who own and manage it, the legal and regulatory frameworks and the actual, on-the-ground practicability of the diverse elements of corporate governance.

In the foreword, editors N Balasubramanian and Deepak Satwalekar made a telling analysis of the decade from the business standpoint: “…what a decade it has been for business and society around the world! A bagful of corporate scams, the virtual breakdown of international financial systems, massive state bailouts even in the so-called free market economies, enormous environmental disasters on land and at sea, unbelievable breaches of business trust and reputational loss…the decade of 2000–2010 had it all.” 
In 2010 itself, four Wharton professors wrote a landmark book on the Indian method of running business. Called ‘The India Way’, the book showed how instead of adopting Western management practices, leading Indian businesses are applying their own strategy, leadership, talent, and organisational culture.

The book’s four illustrious authors - Peter Cappelli, Harbir Singh, Jitendra Singh and Michael Useem - are all professors at Wharton, the business school of Philadelphia’s ivy league University of Pennsylvania in north-eastern USA. Drawing on interviews with tycoons like Reliance’s Mukesh Ambani, Infosys’ Narayana Murthy, and HCL’s Vineet Nayar, they identify what Indian managers do differently. What emerges is that the managers look beyond stockholders’ interests to public mission and national purpose, improvise and adapt, invest in talent and build a stirring culture.

In imbibing and implementing corporate governance, however, there are several important and interdependent issues.

One of them relates to corporate culture based on ethics and values—that are critical for running any organisation efficiently. For any corporate body, its employees are a critical resource. Success comes from good human resource management. “Here, at NSE, human resource is given critical importance. The three important pillars of NSE are information technology (IT), infrastructure development and its human resource. If you look at our five key strategy initiatives, a prominent initiative is progress through people. We take our people’s issues very diligently and seriously,” says Chandrashekhar Mukherjee, NSE’s Vice President, HR.

Mukherjee says that NSE starts this exercise at the very beginning—at the time of talent acquisition. Even before that, he says, a lot of thought goes into the reasons why talent is required and the value that he or she will bring to the workplace, the organisation and ultimately, to the customer. An important consideration is the prospective employee’s value system. Such meticulous talent management has helped NSE build appropriate work ethos and an ethical value system. “We have put in place a performance potential grade and also a competency framework, taking the cue from our strategic goals and core values. Our people get assignments and projects that are properly evaluated on a performance scale. We are constantly moving up the business excellence curve, that’s the underlying idea,” says Mukherjee.

By its very character, NSE is an organisation built and run on trust, since NSE’s business concerns people’s money. Safeguarding the interests of investors requires skills of the sharpest kind. “One of our prime values is customer focus, first and foremost. It is critical for us not only to keep the employee morale high but also to keep our customers happy and satisfied. To ensure greater satisfaction of our customers – brokers - we conduct periodic surveys and for employees, we have employee satisfaction surveys,” adds Mukherjee.

 

In terms of peak load, we handle about 40,000 to 50,000 messages per second, while most other comparable systems handle a meager 100 to 200 or at best, 500 or 1,000 messages per second. Imagine the technological complexity of receiving, routing and engaging such a volume of transaction-related messaging on any given working day. But this is what we are built for, and we do it with panache” 
— Ravi Apte, 
Chief Technology Officer, NSE

Businesses have to comply with the many laws that apply to them. Companies also need to disclose timely and accurate information on matters such as their financial position and performance. Transparency breeds and nurtures faith in corporate bodies and hence, is essential to attract and retain customers, especially since customers are spoilt for choice these days.

Ravi Narain, Managing Director at NSE, says that the might of IT has made it possible not only to monitor transactions, but also track back to any point in time, and fix responsibility. “Since all trading activity is electronically logged, we can go over each and every transaction, and pinpoint the last bit of transaction to establish whether it happened properly or not. Once we know where a problem might lie, we interface the member and the client and ensure that the investor’s interests are protected. We have put into place an elaborate investor service mechanism to ensure that investors are protected when they enter the market. We bank on our understanding of this market, and aim to take this knowledge across the nation’s population. Once they understand the benefits of financial markets, they will benefit from the infrastructure that has been created over a period of time. It means that we need to take the premium benefit to every single prospective investor in the country and allow them to enjoy the benefits of investment,” he adds. 

Just as it helps productivity and profits, innovation fosters the culture of good governance too. Every firm needs to innovate in products and services and in the ways that it interacts with its environment, whether legal, financial, regulatory or social. As the marketplace for cutting edge businesses, NSE needs not only to be up-to-date, it needs to be at innovation’s leading edge. “We have always believed that innovation is the key. The reason why we are leaders in this market is our innovativeness. By continuously innovating on products, services, channels to extend reach and establish customer satisfaction, we have become market leader in the exchange space and completely changed its complexion. Technology is changing rapidly, and its adoption in the industry is equally rapid. If we don’t innovate, we will obviously not be able to hold this leadership position. It’s a bit like the magic sprinter Usain Bolt, who is as good as his last race. To remain leader, he has to constantly lead—it’s that simple. Through innovative products and services, we have helped investors diversify their portfolio and risk. We have ingrained innovation into our very DNA…,” says Ravi Varanasi, Senior Vice President, NSE.

 

If we don’t innovate, we will obviously not be able to hold this leadership position. Through innovative products and services, we have helped investors diversify their portfolio and risk. We have ingrained innovation into our very DNA”
— Ravi Varanasi, 
Senior Vice President, NSE

Having harnessed the power of communication and digital technology, NSE has made ‘investment’, quite literally, a household thing. This has meant understanding and deploying technology on an industrial scale, says Ravi Apte, NSE’s Chief Technology Officer. “Every single thing we do is driven by technology. On any given day we process about 400 million messages in just six hours. This is the highest volume of transaction processed in the country by far. In terms of peak load, we handle about 40,000 to 50,000 messages per second, while most other comparable systems handle a meager 100 to 200 or at best, 500 or 1,000 messages per second. Imagine the technological complexity of receiving, routing and engaging such a volume of transaction-related messaging on any given working day. But this is what we are built for, and we do it with panache. We have millions of users who are located all over the country. In every small town with a population of 10,000 or more, there is an NSE terminal for trading. We have terminals all over the northeast of India, through the north and west of the country and all the way to Kanyakumari. In other words, we have terminals everywhere in India. Scores of millions of people are investing everyday. People of ordinary means now have an opportunity to invest, something they did not have two decades ago. Twenty years ago, we had regional exchanges, which were very limited. And if you wanted to buy or sell a piece of equity stock, you had to send it to the broker who worked two hours a day. Before we changed the trading map of India, trading was limited to ` 400 crore a day, or so. Now, it is at least 100 times as much because we have ‘included’ more people in this journey with us,” says Apte.

 

The three important pillars of NSE are information technology (IT), infrastructure development and its human resource. If you look at our five key strategy initiatives, a prominent initiative is progress through people. We take our people’s issues very diligently and seriously”
— Chandrashekhar Mukherjee, 
Vice President-HR, NSE

Speaking on the vision of the people who helped found NSE, Apte said they created a new paradigm. He said in the old days, clearing and settlement took nearly an entire month. “There was no transparency, everything was on paper, you had to fill out transfer forms and send them by post. That meant lots of difficulty. All stakeholders were consulted in designing and planning the scope of the exchange. All the information required making a buying or selling decision was right here and available on fingertips. This brought all-round transparency and ease of transaction, and eliminated the cumbersome and error-prone legacy of paperwork in transactions and record keeping. As a result, we are ahead of many countries in facilitating a system as robust, reliable, secure, instant and transparent as ours. For example, we stand at T+2 in clearing and settlements in the cash segment, when most countries in world still manage T+3. It’s a full day faster than what others achieve in real time risk management,” he adds. These industry best practices have set up a system that makes good corporate governance not only possible, but also scalable.

Good corporate governance extends beyond facilitating direct business—it reaches out into the society and helps it become more sustainable. One of these relates to financial deepening. “When you talk of financial deepening, it could be understood in multiple ways. One simple way is that everybody in the country participates in the stock market, and another is that everyone is financially literate,” says Chitra. “NSE has a broader social goal of ensuring the financial well being of the people, its purpose statement talks about this commitment. For financial well being, financial literacy and understanding are very important. Specific product knowledge and investor awareness programmes are a definite way to help spread such literacy. We have launched various financial literacy programmes through schools and other institutions,” adds Narain. There are specific courses in schools and colleges and NSE reaches out through the mass media. Messages on trains are one such effort. Such learning should begin early in life, and in that direction, NSE recently organised a financial quiz where school children skillfully answered a host of questions on financial matters.

Good corporate governance can easily be likened to a well-designed, well-maintained car. It hums quietly as it glides on the tarmac. The engine does not have to bother about the power train taking up on the energy, the gear box does not have to chew its nails over the clutch working when needed, and the driver does not have to lose sleep over the brakes responding when needed. Each is designed and tested to perform to the fullest, and each is primed to respond to the slightest impulse.
The result: a ride so smooth, that it feels like a cruise. The National Stock Exchange and all its constituents are primed to perform cohesively and smoothly.

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