Tuesday, April 7, 2015

Reputation Risk - Board's responsibility - Fabindia case

The discovery of CCTV camera focused on trail room in one of the stores in Goa of Fab India, which is a highly reputed fashion stores chain, has caused lot of embarrassment to the company.

Time of India reported that the Goa Chief Minister told reporters "Fabindia is supposed to be a reputed company. I personally feel that it must not be the company's fault but mischief played by its staff members. Some womanizers must have done that,"

The Goa CM might be right. But the management and the board of directors have to take the responsibility for any thing that occurs in any of its establishments and establishments of its business partners and providers of outsourced services or goods. More importantly, the reputation of Fab India is tarnished.  The case is under investigation. Truth will come out in due course. If it comes out that it was a false alarm, the company will be able to recover very quickly. In case it turns out to be an intentional act of one or more employees of the store, the company will find it difficult to earn back its credibility fast. It will be established that the company has failed to initiate field-level employees to its standards of conduct. This will hurt the reputation of the company and its business badly and shareholders will hold the management and the board responsible for failing to identify the risk and install adequate internal control.

This case again brings to fore the necessity for establishing an ethical culture in the organisation and appropriate programme for initiating every employee of the organisation to standards of conduct. It is also necessary to establish a robust 'whistle blower mechanism'. Unfortunately, most companies often do not pay adequate attention to those aspects of corporate governance. 


  1. It would be necessary also to examine what remedies are available to company boards in cases where employees are found indulging in culpable acts.

    1. Directors have to establish that they had acted diligently and with due care to ensure that internal onctols are not only adequate but also operating effectively. If, they can establish that then there is no penalty. However, by no means, they can avoid moral responsibility.