Corporate Governance, Economic Reforms and Development The Indian Experience Edited by Darryl Reed and Sanjoy Mukherjee Oxford University Press Pages: 270; price: Rs 595

DESPITE a large body of research in both areas, the link between corporate governance and economic development has seldom been emphasised. The reason is, perhaps, the fact that development and related policy issues have historically been construed to be the domain of the state where corporate or business activity has, at best, a peripheral role. The notion of corporate governance has, on the other hand, been narrowly defined in terms of the mechanism that aligns the interests of the management of corporations with the larger body of its shareholders.

Corporate Governance, Economic Reforms and Development attempts to transcend these narrow definitions. The book is a collection of essays set out as chapters that focus on the link between corporate governance issues and development in a post-reforms Indian scenario. The chapter format gives the book a sense of continuity - each essay appearing to be a part of a logical sequence of analysis rather than a stand-alone piece. It is a mix of purely analytical pieces and empirical work set in the Indian context.

Co-editor Darryl Reed goes to great lengths to explain why the connection between the two spheres is becoming increasingly critical. At a fundamental level, the advent of globalisation and the concomitant rise of market economics have much to do with this. The rise of market forces implies that the state is taking a backseat in all spheres of economic activity including development and, therefore, creating space for private enterprise in the process. Thus, there is a growing need to align the motivations of corporate enterprise with broader developmental objectives.

In a brilliantly written first chapter, Reed examines the historical backdrop of development strategy and identifies two broad paradigms, import-substituting industrialisation and export-led industrialisation. Both, he finds, involve a heavy dose of government intervention and have fostered similar structures of industrial organisation (South Korean chaebols, for instance, are similar to India's family-owned conglomerates). However, the efficacy of both models in delivering the desired results has been called into question, thereby facilitating the adoption of a 'third way' - a model of freer private enterprise guided by the Anglo-American model of corporate governance. Its key characteristics are a "single-tiered board structure, a dominant role for financial markets and, correspondingly, a weak role for banks and, finally, little or no industrial policy involving firms cooperating with government agencies".

In an environment of increasing globalisation, there are marked tensions between the emerging corporate philosophies or strategies and the broader developmental goals. As one of the contributors, Anup Sinha argues that greater international integration brings with it greater freedom for firms in the core decisions they take and also expands their global reach. However, it also fosters much greater uncertainty in the business scenario faced by corporations. The response to this set of changes is by no means unambiguous - it can and has in many cases led to the evolution of a corporate ethic that is 'self-seeking and devoid of any serious moral agency', according to Sinha who cites the Enron example here. The idea is to stem this form of negative and short-term response and align larger social and economic interests with the interests of the individual enterprise. This, he claims, is the real objective of any programme of economic reforms.

Of the empirical essays, Jairus Banaji's essay on 'institutional investors and nominee directors' stands out. Banaji examines India's two major 'codes' of corporate governance: the Sebi code formulated in 2000 by the Kumara Mangalam Birla committee and the Confederation of Indian Industry code written earlier. His essay, based on approximately 160 interviews with a cross-section of bankers, fund managers and company managers, attempts to understand the efficacy of these codes given the nuances and peculiarities of the Indian situation (the large representations of nominee directors from financial institutions, for instance). Banaji provides a useful international perspective by explaining the structure of the UK's Cadbury report. Written in 1992, the Cadbury report provided the blueprint for other international canons of governance, including the Indian codes. Using the report as a benchmark, Banaji explores the significant deviations in the Indian norms from the best practices suggested in the Cadbury report.

Ashish Bhattacharya provides a useful review of financial reporting practices in India and documents the attempts by different interest groups to thwart attempts to improve financial reporting standards. He identifies the desire of Indian firms to access foreign capital and the rise of 'knowledge-based' companies as the key drivers of the recent changes in disclosure norms.
On the whole, this is a well-written and extremely topical compendium that should interest academics as well as practitioners in their various fields.

Abheek Barua is senior economist, Crisil Centre for Economic Research

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