08 March 2009
CORPORATE GOVERNANCE IN THE INVESTMENT WORLD
Last year a very popular business TV channel awarded the Golden Peacock Award for Corporate Governance to Mr Raju of Satyam infamy. Very lately we also have the spectacle of the print and net based media going ga-ga over Nirmal Kotecha and his meteoric rise. Fortunately his unethical and illegal means now stand exposed. He was assisted in his misadventure by a senior journalist of a leading pink paper. Within the larger question of ethics, it also raises the issue of the standard of corporate governance and standard of journalism in India. It seems, how much ever we denigrate the western world for its culture of corporate greed and manipulation by media, we are no better or worse than them.
And how does it affect you as an investor? Well in my view it raises the Cost of Equity. Simply put, lower standards of corporate governance implies higher risk entailed by the equity investor and hence a higher cost of equity. A sort of paying a higher insurance premium when sailing in troubled somalian waters to cover for the enhanced risk.
All in all, a clear negative for the stock market. The only positive takeway from these sordid affairs is the strength displayed by the Indian regulator and the systems put in place. Hopefully this will deter more such mis-adventurous finaglers. About the dishonesty in journalism, one can only pray that the power of media is wielded by more sincere and trustworthy hands.
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