In a striking revelation that should make corporate boards across India uncomfortable, Securities and Exchange Board of India (SEBI) chairperson Tuhin Kanta Pandey has drawn a clear line between mere regulatory compliance and genuine corporate governance. Speaking at the 'Gatekeepers of Governance' summit, Pandey delivered a message that resonates deeply with the current state of corporate India's approach to governance standards.
The Critical Distinction: Compliance Versus Governance
Tuhin Kanta Pandey made an elegant yet damning distinction between what constitutes compliance and what represents true governance. According to the SEBI chief, compliance represents the basic requirement of meeting regulatory checklists and fulfilling mandatory obligations. Governance, however, operates at a fundamentally different level - it's about acting from conviction and believing in doing the right thing, not because regulations demand it.
The regulator emphasized that compliance should be viewed as the floor, not the ceiling, of corporate behavior. This clarification comes as a refreshing acknowledgment of what market observers and investors have suspected for years - that Indian companies have become exceptionally skilled at the theatrical performance of governance without necessarily embracing its substance.
The Elaborate Theatre of Corporate Governance
Dhirendra Kumar, CEO of Value Research, compares the current state of corporate governance to an elaborate wedding celebration. Everything appears choreographed to perfection, with magnificent decorations and rituals performed with great solemnity. However, just as the quality of a wedding ceremony has little correlation with the success of the marriage that follows, the elaborate structures of corporate governance often lack genuine substance.
Indian corporations have developed an entire ecosystem featuring independent directors who regularly attend meetings, audit committees that review reports, and compliance officers who ensure timely disclosures. The paperwork is consistently immaculate, and all regulatory checkboxes are meticulously ticked. Yet beneath this polished surface, the core principles of governance often remain unaddressed.
The ESG Performance: A New Act in the Governance Theatre
The SEBI chairperson was particularly blunt about the emerging trend of Environmental, Social, and Governance (ESG) compliance. Pandey noted that ESG initiatives must be authentic rather than serving as branding exercises - a polite way of stating that ESG has largely become another performance metric for many Indian companies.
Corporations now produce glossy sustainability reports filled with images of happy farmers and solar panels. They create elaborate frameworks with impressive-sounding metrics and appoint dedicated ESG committees to oversee the entire process. However, the critical question remains: Does any of this translate into genuine environmental or social benefit?
Dhirendra Kumar expresses deep skepticism about the entire ESG apparatus, not because the underlying goals are flawed, but because the execution has become another layer of the compliance theatre that Indian companies have already perfected. Genuinely important concerns about sustainability and governance have been transformed into another set of boxes to tick and another consultant-driven exercise.
The Investor's Dilemma in a World of Governance Theatre
This situation creates significant challenges for retail investors who are consistently advised to seek out well-governed companies. The traditional markers - independent directors, proper committees, and timely disclosures - have become potentially unreliable indicators of genuine governance quality. If all these elements can be staged as part of an elaborate performance, how can investors distinguish between companies that truly believe in governance principles and those that have simply hired better actors?
The uncomfortable truth is that there are no easy answers. Regulatory compliance can no longer serve as a reliable signal of genuine governance because companies have become exceptionally proficient at gaming the system. The solution, according to investment experts, lies in diversification and maintaining healthy skepticism toward any company that makes governance and ESG too central to its marketing narrative.
Companies that authentically practice good governance rarely need to loudly proclaim it - the results typically manifest in their financial performance and long-term sustainability. While SEBI is correct to push companies toward substance over form and conviction over compulsion, investors shouldn't wait for a miraculous cultural transformation before making investment decisions.
The prudent approach involves assuming that most companies will continue to perform governance rather than practice it, and building investment portfolios accordingly. If some companies genuinely embody good governance principles, investors can consider that a welcome bonus rather than an expected standard. In an environment dominated by professional actors, the real protection lies in not becoming overly invested in any single performance.
As in other areas of personal finance, skepticism should remain the default position for investors navigating the complex landscape of corporate governance in India. The SEBI chairperson's comments serve as an important reminder that while regulations can create frameworks for better behavior, they cannot mandate integrity or genuine commitment to governance principles.
