Our Bureau

Chennai , March 31

IF America saw the need to bring in the Sarbanes-Oxley Act, 2002, for corporate governance, it was not just about regulations and compliance but that good governance is good business, which is how PepsiCo Inc sees it, according to its President and CFO, Ms Indra Nooyi.

At a meeting on "Corporate governance post-Enron: Pepsi's response to the challenges in this environment," Ms Nooyi said companies could benefit in terms of efficiencies by making good governance an inherent part of the their working.

Many companies look at the Act, popularly referred to as SOX, as a constraining legislation. A study of 1,400 chief executives indicated that over-regulation was one of the top 10 risks and SOX headed that list. However, SOX is an imperative needed to instil public confidence in the corporate sector.

PepsiCo itself has efficiently operationalised the requirements without over-correction. It has evolved a strong and controlled environment and embedded the systems within the company. Initially, it could be a struggle to meet the compliance requirements but it was bound to get easier with time. Companies would then reap the benefits of good governance, Ms Nooyi said.

Who would you do business with? A strong company and clear codes and ethics or any other, she asked.

Companies with strong governance practices have demonstrated strong financial returns. PepsiCo has scored high with external governance bodies such as the Institutional Shareholder Services and the Governance Metrics International, she said, at the meeting organised by the Confederation of Indian Industry.

PepsiCo has used these ratings as an independent assessment apart from putting in place internal systems.

It has introduced the concept of proportionate responsibility. Accountability is distributed across the chain of command in proportion to their responsibility. This prevents the responsibility for productivity falling on just a few people. To ensure feedback it has a "speak up" line handled by an independent company. Employees could bring to the attention of senior administration faults and problems without fear.

Nooyi nostalgia

THEY came in droves, CEOs to senior executives from top corporates in Chennai, not only to hear Ms Indra Nooyi in her capacity as President of PepsiCo Inc but also because she is Chennai's own, or Madras as she would like to remember it.

A graduate in chemistry from the sylvan campus of Madras Christian College, Ms Nooyi prefaced her talk with a slice of nostalgia of her time in Madras where she had spent her formative years. Nor did she think, she said, that she would come back some day to address the city's top executives.

Mr R. Seshasayee, Managing Director, Ashok Leyland, and past Chairman, CII, Southern Region, said the audience were as much concerned about corporate governance as they were about corporate results as they had turned up in large numbers though it was the last day of the financial year.

Ms Nooyi said if it wasn't about a serious subject like SOX that she was talking on, she would be among the audience injecting some humour . She did at one point when she referred to the fact that Pepsi has received the highest overall score from GMI, an achievement matched by only three out of the 3,200 companies evaluated. "If I said this at a talk in the US, I would get loud applause," only to be met with stony silence, till a lone hand clapped. Tongue firmly in cheek, Ms Nooyi said it must be a Pepsi staffer, only to add the punchline, sotto voce, "job security," which brought the roof down.

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