CSR Workshop & Panel Discussion

Governance makes business sense

Filed under Corporate Governance |

By Richard Rekhy

Clarifying the value system is the greatest contribution a leader can make— Peters and Waterman

Recent political e­v­­ents in West Asia have once again br­o­­u­ght governa­n­ce t­o the forefront. W­o­­rld politics is changing as the old order and autocratic and n­a­r­cissist rulers collapse. People are demanding fair play and justice. The governance deficit among the current set of leaders in the world is being exposed and people are no longer willing to accept them. Similarly, the corporate sector across the world has been rocked by scandals. The dimension of ea­ch scandal is larger than the la­st. The world will not be able to withstand such shocks for long. We have seen large companies as well as individuals suffer indignity and shame. It’s difficult to understand why reputed and successful organisations and individuals put everything at stake for some immediate ga­ins. They say water finds its own level. I clearly remember an advice I received early in life: even if you do anything under the cover of darkness, it should withstand scrutiny when that darkness is lifted. It cannot be truer than in to­d­ay’s context.

The world is going through a huge trust deficit. The world today is globalised and interconnected. The public is informed and educated; media and technology together have brought around a kind of transparency that has the potential to expose all our actions. The recent Occupy Wall Street mo­vement has spread worldwide and gained momentum — calling for a world revolution to free the world from greed and corruption. So what are we wa­iting for? It is time that we all understood that ethics and mo­rality are not just soft intangibles; they are fundamental to business values that companies have to incorporate for sustainable long-term success. If our own moral code is not sufficient to teach us this reality — then the world will teach us. The world is coming around to the view that governance ma­kes business sense. Corporate citizenship and governance si­m­­ply mean a commitment to ethical behaviour in business. There have been enough financial scandals that should teach us this lesson — starting from Enron. If we haven’t realised the value of integrity and ethics in business, we are simply burying our head in the sand. Governance is not a science or art but a state of mind and if that is not our natural state of mind, we have to learn it.

Leaders need to think long term. Once we realise that we are responsible for giving a better world to our future generations, a lot of this will dawn on each of us. Yes, we need strategy and actions for the short term and for sustenance but we have far greater responsibility to ensure that future generations inherit a better world th­a­n it is today. In the words of Ma­rtin Luther King Jr, “An individual has not started living until he can rise above the narrow confines of his individualistic concerns to the broader concerns of all humanity.”

Empirical evidence proves that environmental, social and governance responsibilities a­r­e integral to a company’s long-term sustainability. Well-governed companies often draw huge investment premiums, get access to cheaper debt, and outperform their pe­ers. Adoption of better corporate governance practices will improve top-level decision m­a­­k­ing pro­cesses. Adherence to good gove­rnance and environmental and social performan­ce standa­­rds has been shown to build brand value and reputation, which are essential bu­s­iness assets.

Ethical practices will earn respect from the supply chain and improve efficiency. Impr­oved human capital practices and fair management will tr­anslate into improved productivity, higher retention and reduced reputational risks. The list can go on but simply put, well-defined shareholder rig­hts, a solid control environme­nt, high levels of transparency and disclosure, an empowered board of directors and an ethical and fair management make a company more attractive to both investors and lenders, and more profitable. Hence it pays to promote good corporate governance. To qu­ote Warren Buffett, “Chains of habit are too light to be felt until they are too heavy to be broken.”

While we talk of governance and culture, we must also talk of leadership, because at the core of governance is the leader. Culture, behaviour and values are led from the top and holistic governance, therefore, must be the CEO’s top agenda. Culture and governance are powerful tools that the CEO can use to improve productivity, enhance transparency, encourage innovation, adopt accountability and drive the entire organisation towards their objectives.

If we simply focus on the short term — the here and now, we will be caught up in celebrating successes that don’t last. The opportunity called governance is knocking at the doors of the corporate conscience. If our organisations do not respond to it today, they may cease to exist in tomorrow’s world. Business fundamentals and strategies need to align themselves to this fact. Governance can become the most powerful strategic tool that a CEO has today.

As Klaus Schwab, World Economic Forum founder and executive chairman, says, “The current crisis should actually sound alarm bells for us to fundamentally rethink the development of our morals, our ethical norms, and the regulatory mechanisms that underpin our economy, politics, and global interconnectednes.”

(The writer is deputy CEO and head, advisory services of KPMG, India)

(Sourced from Financial Express)

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Posted by on Nov 8 2011. Filed under Corporate Governance. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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