COMPANIES STRIVE FOR VALUE ADDING GOVERNANCE

Posted by: Rajat Kumar, Head of Finance

The bar for accepted standards of transparency and accountability are rising and fast. Fair practice, equal opportunity employment, social contribution and preserving the environment will begin to matter for the employee and the consumer - and hence the investor.

While agility, ability to manage employee expectations and to proactively tackling competition will continue to remain the focal points for leaders and organizations, Corporate Governance is slowly emerging as a critical intangible with an altogether new definition and role to play. In real sense of the word, Corporate Governance will be reckoned as that aligning force that will bind together the expectations of the stakeholders of the organization, business strategies and objectives, their impact on social, economic, political and cultural factors, and the future vision of sustainability and growth. The concept of corporate governance in India is, in essence, different from that in western countries. While in the latter it deals with accountability of management towards shareholders, in India it is more to do with protecting the minority shareholder from the dominant shareholder or promoter. Apart from the Satyam saga, there have been numerous instances of unscrupulous promoters in India.

As Indian companies have set global footprints now, the need to be conscious about the board composition has risen all the more. Many Indian companies will now have to follow global standards in terms of board composition, their pay structure and their responsibilities. Adequate attention will also be laid on the effectiveness of the board committees - Audit Committee, Remuneration Committee, Nomination Committee etc. There will likely be more robust evaluation of the performance of the board in a true sense and not just to fulfil statutory compliance.

Given the threshold of a transformed business landscape that India is standing at, Corporate Governance will assume various meanings – from fair practice, to ensuring equal growth opportunities to employees, contributing to the welfare of the society, preserving natural resources, contributing to the growth of the sector etc. And one very important aspect that will remain common for all these new meanings of corporate governance will be Sustainability. All business strategies should be devised keeping in mind the long-term sustainability and viability of projects. Due to globalization, where on one hand organizations will be creating a competitive environment, they will have to be extremely responsible and transparent to all stakeholders on the other. And that is where corporate governance and sustainability will come in. A management that takes decisions based on long-term value and sustainability - and is incentivised for the same – would automatically bring in the concept of transparency and accountability.

Going forward, growth will not just be defined in terms of a company’s bottom line. Growth in the next orbit will be defined to be more meaningful, inclusive and will include growth of human capital, value to stakeholders and contribution to the growth of the economy, community and society. Intangibles like employee engagement, retention, and transparency are slowly taking precedence.