India, the United States and Corporate Governance

by Dennis McCuistion

Source: Dallas Business Journal

My first trip to India in March to share my thoughts on corporate governance with 50 executive MBA students at the prestigious Indian Institute of Management in Kolkata was eye-opening.

While the students generally are younger and have less business experience than our executive MBA students here at the University of Texas at Dallas, each has to quit his or her job, attend full time and live on campus.

Politics was in the air.

Elections take place over several weeks, and the BJP party, led by Narendra Modi, has just won a landslide victory over the Congress party, essentially the Nehru-Gandhi “dynasty” that has run India for most of its 67-year existence. The day I left, the Times of India published a manifesto for change that read “Governance has all but collapsed at every level, and there is cynicism everywhere.” Dozens of proposals for change were outlined, mostly the usual suggestions of eliminating corruption, waste, and fraud, streamlining government, spending more on education and healthcare and reducing the deficit which is about five percent of GDP. Policies of trying to tax the rich have created a culture of bribery and corruption.

With 1.2 billion people, India has about 18 percent of the world’s population occupying about one third of the space that we do in the United States. It’s crowded. Not only are there a lot of Indians, by and large they represent a talented people. The new CEO of Microsoft and the new president of Harvard University are of Indian descent. Great companies such as Wipro, Infosys, and Tata are all Indian companies. Estimates are that 30 percent of all Silicon Valley startups are the creation of entrepreneurs of Asian descent, a majority of them of Indian origin. By the way, North Texas doesn’t hurt for similar talent either.

Entrepreneur Rocky Dhir of Dallas-based Atlas Legal, has said, “Modi’s election could pave the way for energy investments in wind and solar. North Texas is home to two innovators in the renewable energy sphere. One is obvious — T. Boone Pickens in the wind sector. The other is Principal Solar, one of the cutting edge solar energy companies in the U.S..”

UTD professor Suresh Radhakrishnan told me that Modi’s election could open up more direct investment from North Texas defense contractors and telecommunications companies. He says that Modi can exercise good governance just by reining in the culture of corruption.

Corporate governance there is weak but improving with a new Companies Act passed last year and new regulations from their securities regulator. Still, regulations are not uniformly administered, special favors and bribery and a culture that rewards political patronage work to prevent thousands of would-be entrepreneurs from creating millions of jobs.

Thanks largely to Mahatma Gandhi, India gained its independence from its colonial overlord, Great Britain, in 1947. The Brits exposed the first prime minister, Jawaharlal Nehru, to a British group known as Fabian socialists. Nehru didn’t trust capitalism, and socialism as practiced in the USSR was harsh, so he tried a “Third Way.” His five-year plans included a goal of fixing income and wealth inequality and poverty, but his economic policies squandered the great promise of India for more than four decades. Reforms in the early ’90s helped, but recent backsliding by the Congress Party cost it the election.

In one of his victory speeches, Mr. Modi said, “I didn’t get a chance to sacrifice my life in India’s freedom struggle, but I have the chance to dedicate myself to good governance.”

Dennis McCuistion is a clinical professor of corporate governance and host of the “McCuistion” television program on KERA.