The Adani Group, one of India’s largest conglomerates, has been in the headlines recently for all the wrong reasons. The group, which operates in various sectors ranging from infrastructure to energy, has been embroiled in numerous controversies, including allegations of environmental violations, land grabbing, and tax evasion. The latest scandal involves allegations of insider trading by one of its companies, Adani Enterprises.
While it is easy to point fingers and assign blame, it is important to examine what the Adani Group board could have done before these issues surfaced. It is another matter altogether if the board was complicit in this game but here are some steps that the board could have taken to avoid or mitigate the impact of these controversies.
Implement a robust compliance programme
The Adani Group board could have implemented a robust compliance programme to ensure that the group’s businesses were operating within the legal and regulatory framework. This should have included regular audits and risk assessments to identify potential compliance issues, as well as training programmes for employees to ensure that they were aware of their legal obligations.
Engage with stakeholders
The board could have engaged with stakeholders including local communities, environmental groups, and regulators, to ensure that their concerns were addressed. This could have helped the group avoid or mitigate the impact of controversies such as the alleged environmental violations and land grabbing.
Foster a culture of transparency
The board could have fostered a culture of transparency within the group. This could have included regular disclosure of financial and non-financial information, as well as open communication channels for employees and other stakeholders to report any issues or concerns.
Strengthen governance structures
The board could have strengthened the group’s governance structures to ensure that there was adequate oversight and accountability. This could have included the appointment of independent directors to the board, the establishment of audit and risk committees, and the adoption of best practices in corporate governance.
Monitor social media and online platforms
They could have monitored social media and online platforms to identify potential reputational risks. This could have helped the group respond quickly to negative publicity and take proactive measures to address any concerns raised by stakeholders.
As soon as the Hindenburg report surfaced and short selling happened, Adani board could have launched an independent investigation into the allegations to determine the facts and assess the severity of the issue. This would involve engaging a reputable law firm or forensic accounting firm to conduct a thorough and objective investigation. Instead of the CFO denying the allegations outright and playing the conspiracy theory against India, however much Gautam Adani was close to the prime minister.
The board should ensure that the group is fully compliant with all legal and regulatory requirements. This might involve cooperating with regulatory authorities (which in this case was grossly absent with SEBI and Adani allegedly taking years to answer the queries by MP Mahua Moitra), paying any fines or penalties, and implementing new controls and procedures to prevent similar issues from occurring in the future.
Written to @SEBI_India again today wanting some long awaited answers to my previous queries. pic.twitter.com/uJK6JCewlc
— Mahua Moitra (@MahuaMoitra) January 30, 2023
There are serious issues when the group’s internal controls and governance structures are dominated by family members alone. An enhancement strategy would have been to appoint additional independent directors to the board, strengthen risk management processes, and improve the quality of disclosures and due diligence processes.
The board should have taken appropriate disciplinary action against any individuals involved in the scam, including terminating their employment or pursuing legal action if necessary. This would have demonstrated the board’s commitment to ethical and responsible business practices, and deterred any future wrongdoing. The board would then have determined if the short seller report were bogus and fraudulent, and could have dealt with that legally, which also did not happen.
These steps would have helped the group build a strong reputation for ethical and responsible business practices, which is essential for long-term success in today’s competitive business environment.
- What questions the board members could have asked to investigate the allegations and take appropriate action?
- What is the factual basis for the allegations made in the report? Review the evidence presented in the report as well as conduct additional investigations to corroborate or refute the claims.
- What are the potential legal and regulatory risks associated with the allegations? Analyse the relevant laws and regulations, and consult with legal experts to determine the potential impact of the allegations on the group’s operations and reputation.
- What steps can the group take to address the allegations and mitigate the risks? Launch internal investigation, engage with stakeholders to address their concerns, and implement changes to the group’s policies and procedures to prevent similar issues from arising in the future.
- How can the group rebuild its reputation in the wake of the allegations? Develop a public relations strategy to address the concerns raised by stakeholders, and implement changes to the group’s governance and compliance structures to demonstrate a commitment to ethical and responsible business practices.
- How can the board prevent similar issues from arising in the future? Reflect on the factors that contributed to the allegations and discuss how they could prevent similar issues from arising in the future.
Since the release of reports by the US-based short-seller on other firms, the Adani Group board could have taken proactive and transparent approach, which could have avoided the current scam altogether. But then who had the inclination for better governance?
Dr M. Muneer is a Fortune 500 consultant, author, start-up investor/mentor and co-founder of the non-profit Medici Institute. Twitter @MuneerMuh.