Corporate governance is often discussed as a modern boardroom concern. It is framed through disclosure rules, compliance frameworks, sustainability reports, and regulatory oversight. But the central problem is older and simpler. Governance fails when systems reward the wrong behaviour and make integrity harder to sustain.
A story from colonial Delhi illustrates the point well. Faced with deaths from cobra bites, the British administration announced a reward for every dead cobra. At first, the policy seemed to work. Villagers killed snakes, claimed the bounty, and the number of deaths came down. But the incentive soon invited abuse. Some people began breeding cobras only to kill them and collect the reward. When the government discovered this and withdrew the scheme, the number of cobras was reportedly higher than when the scheme began.
The moral is clear. A policy can appear sound on paper and still produce perverse outcomes. When incentives are misaligned, systems can encourage conduct that defeats their own purpose. This is not only a design failure. It is also a failure of ethics. Governance rests on the principle that people should act with the same honesty whether someone is watching or not. Once that principle weakens, compliance becomes theatre.
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Corporate governance is not a one-time reform
This problem is not confined to old stories. Nor is it captured fully by citing a few headline scandals. Corporate governance failures did not begin with Satyam, and they did not end there. They persist because each new rule creates fresh incentives, and each new loophole invites new forms of manipulation. Another example comes from Nepal’s effort to clean up Mount Everest.
Mountaineers had to deposit $4,000 before the climb. The amount would be refunded if they brought back at least 8 kg of waste. The objective was sensible. Climbers do leave waste on the mountain, and the state wanted a mechanism to ensure cleanup. But even such a well-meaning system could be gamed. Many climbers reportedly brought waste from lower camps instead of the higher reaches for which the rule was designed. The scheme ran for years, but the behavioural distortion remained.
The lesson is the same as in the cobra story. Badly structured systems generate compliance that is formal rather than real and lack of Individual commitment towards ethical behaviour defeats its purpose. That is why governance reform has had to be continuous. The Cadbury Report in the UK in 1992 became a global landmark. In India, the Confederation of Indian Industry introduced its code of corporate governance in 1998. The Kumar Mangalam Birla committee followed in 1999. Then came Clause 49, the Naresh Chandra committee, the Narayana Murthy committee, and later the Kotak committee in 2017.
On the sustainability side, the Business Responsibility Report arrived in 2012, followed by the Business Responsibility and Sustainability Report in 2021. Each reform came in response to new weaknesses and new distortions. Governance frameworks have expanded not because the problem was solved, but because it kept changing shape.
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Governance is inseparable from sustainability
It would be wrong to think of governance as a borrowed corporate vocabulary that arrived with modern regulation. India’s own intellectual traditions have long engaged with the relationship between power, conduct, continuity, and restraint.
The Arthashastra is often viewed only as a treatise on wealth and statecraft. That is too narrow a reading. Its concern is not merely acquisition, but preservation. How is wealth to be gained? How is it to be sustained? How should order be maintained? These are governance questions. They are also sustainability questions.
The link matters. An institution that can generate wealth but cannot preserve trust will eventually weaken. A system that values gain without accountability cannot remain stable for long. Other Indian texts, too, deal with discipline, conduct, and the duties of those who wield power. The point is not to romanticise the past. It is to recognise that governance, properly understood, has always been about stewardship.
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When conformity replaces judgment
A parable from Khalil Gibran helps explain the problem in modern terms. In The Madman, a witch poisons the public well. Everyone who drinks from it goes mad, except the king and his ministers. Soon the people conclude that the king is the mad one, because he no longer behaves like the rest of them. Faced with growing pressure, the king and his ministers also drink from the well.
This is more than a moral fable. It is a governance warning. It captures information asymmetry, risk asymmetry, and goal asymmetry in one image. No one alerts the king in time. No one assesses the risk. No one prepares for a breakdown. And when the system begins to turn irrational, leadership chooses conformity over judgment.
That is not far removed from the pressures inside companies and markets. When weak practices become normal, dissent becomes costly. Whistleblowers fall silent. Boards defer. Executives rationalise. Auditors miss what they should have caught. Soon, the organisation does not merely tolerate poor governance. It begins to call it normal business behaviour.
This is precisely what governance mechanisms are meant to prevent. Their purpose is not only to detect fraud after it erupts. It is to stop the gradual normalisation of bad conduct before it becomes systemic.
Governance must protect small shareholders
The deeper purpose of corporate governance is to protect those who have the least power within the corporate structure. That includes minority shareholders, employees, consumers, and in many cases the wider public.
Indian thought recognised a similar danger through the idea of matsya nyaya — the law of the fish, where the big fish devours the small one. Good governance exists to prevent precisely that outcome. It creates rules, oversight, and checks so that scale does not become a licence for abuse.
When these checks fail, the strongest actors in the system impose costs on everyone else. Minority shareholders are diluted or misled. Consumers bear hidden risks. Markets lose trust. The reputational damage then spreads beyond one firm to the wider corporate sector.
The real test is ease of being honest
Recent years have seen much discussion on ease of doing business. The focus is understandable. Excessive rules, procedural delays, and bureaucratic clutter impose real costs. Some have called this “regulatory cholesterol”. The phrase is apt. Rules can accumulate in ways that burden the compliant without deterring the dishonest. But the more important test is different. Public policy should aim not only for ease of doing business, but for ease of being honest.
That is the real governance standard. If an honest firm faces delay at every step, while a manipulative one finds shortcuts, the system begins to punish integrity. Frustration then creates its own moral hazard. People start asking whether rules are worth following at all. This is where governance failures often begin — not in spectacular fraud, but in the slow erosion of trust in fair process.
That is why some delay may be preferable to some error. Speed has value, but only when it serves sound outcomes. A system that moves quickly while weakening scrutiny is not efficient. It is simply careless.
Ethics cannot be outsourced to compliance
No governance architecture can succeed if ethics is treated as optional. Rules matter. Disclosures matter. Audit systems matter. Risk assessment matters. Scenario planning matters. Whistleblower protections matter. But none of them can substitute for a culture that values integrity even when compliance is inconvenient.
Governance is not just about identifying breaches. It is about building institutions in which right conduct becomes normal and wrong conduct becomes difficult.
That calls for four qualities in both organisations and leadership: perseverance, vision, wisdom, and skill. Perseverance is needed because ethical conduct is often slower and harder. Vision is needed because sustainability requires a longer horizon than quarterly performance. Wisdom is needed because no rulebook can anticipate every distortion. Skill is needed because good intentions without competent execution are of little use.
Corporate governance and sustainability are therefore not separate subjects. Governance without sustainability becomes short-term extraction. Sustainability without governance becomes branding. Both depend on a system that aligns incentives with values and protects judgment from the pressure of conformity.
That remains the central challenge. And it is why the real task before boards, regulators, and policymakers is not merely to produce more rules. It is to create institutions in which honesty is not heroic, but normal.
Dr Pankaj Satija is Chairperson – ICC National Expert Committee on Minerals & Metals. The views expressed in this article are of the author and not necessarily those of the organisations he is associated with.