“Corporate Governance is the application of best management practices, compliance of law in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders”
–Institute of Company Secretaries of India
Genesis
Across the globe, virtuous governance has become pre-requisite for every successful and sustainable business. Governance has been evolving continuously. Since ancient times, good governance has been everlasting source of inspired thinking and committed action. The term ‘Governance’ finds its roots in various languages. The Greek word ‘kubernan’ meaning to steer, the Latin word ‘gubernare’ meaning to steer or rule, the old French word ‘governer’… all led to the finalization of the word ‘govern’ in Middle English which means ‘to control, influence, or regulate (a person, action, or course of events)’ or ‘to conduct the policy, actions, and affairs (of a state, organization, or people) with authority’.
The genesis of good governance can also be traced in our old Sanskrit literature viz. Mahabharata, Ramayana, Chanakya, Arthashastra and other NITIS & SMRITIS. Kautaliya’s Arthshastra appropriates a philosophy of governance aiming at ‘Yogakshema’ of the people to be achieved through ‘Shushashan’ (Good Governance). It is stated that a ruler’s happiness lies in the happiness of his subjects. Whatever pleases him (personally) he shall not consider as good, whatever makes his subjects happy, he shall consider as good. The Bhagawadt Gita also emphasizes on ‘Dharma’ meaning thereby conduct of a person in virtuous manner upholding the moral codes, ethical standards, deeds and virtues. The ancient concept of ‘Ram Rajya’, comprising the philosophy of Lord Ram to preach, uphold, profess and practice transparency and accountability in decision making is what today governance experts look for in any entity or an organization.
Pillars of Corporate Governance
Virtuous Corporate Governance consist of several magnitudes. It is the key to enable an organization to achieve its objective of comprehensive growth. It is an essential complement to sound economic policies and is central to creating and sustaining an environment which fosters strong and equitable development. The foundation pillars on which Corporate Governance vests include transparency, fairness, accountability, responsibility. An effective governance structure, which is relied upon by stakeholders, encompasses regulation, value system, discipline, corporate culture.
Over the years, the modulation of corporate governance has shifted from shareholder concept to stakeholder concept and further from being profitable to sustainable. The fundamental principles on which effective governance lies also include one more pillar viz. ‘Sustainability’- a challenge posed by climate change. It is aimed to create long-term stakeholder value in the changing world by executing and implementing business strategy dedicated towards ethical, social, environmental, cultural and economic dimensions of doing business. Virtuous corporate governance inculcates culture of truth, cleanliness, transparency and values. Board and Management need to focus on both and adopt an integrated enterprise governance approach for maximizing the benefits for all stakeholders.
Mechanism of virtuous corporate governance
A corporate governance structure combines controls, policies and guidelines that drive the organization toward its objectives while also satisfying stakeholders’ needs. Virtuous corporate governance is not just about compliance. Rather it is a mechanism to achieve the objectives of an organization. Virtuous corporate governance facilitate protection of interest of the stakeholders. Governance structure combines controls, policies and guidelines that drive the organization towards meeting its objectives. Effective corporate governance is essential if the organization intends to set and meet its strategic goals. The structure is often a combination of various mechanisms. Board of Directors play crucial role in protecting interest of the company shareholder.
Governance in letter vis-à-vis spirit
Virtuous corporate governance has significant role in enhancing the confidence in domestic as well as international markets. It is of utmost importance to strictly respect and comply with both the letter and the spirit of the law as a good corporate citizen. It enables sustainable growth of the corporates and safeguarding the interest of all stakeholders. It is pertinent to note that spirit of governance may not be embraced wholeheartedly by corporates while compliance has been ensured in letter.
Corporates have resorted to a check-the-box or “letter of the law,” approach to compliance. Spirit of Law should be given importance. The challenge lies in instilling governance in corporate culture in a manner which ensures that there is improving compliance “in sprit”.
A transparent, virtuous and accountable corporate governance framework essentially derives from the inherent passion for good governance entrenched in the ethos of the organization. Corporates should endeavor to go beyond law in upholding Corporate Governance standards. They should devise Corporate Governance Guidelines that are strictly followed in letter and spirit. It is a matter of fact that no laws can be enforced and yield results till Corporates adopt best practices as part of its DNA for which self-regulation is of utmost importance. The following quote by Abraham Lincoln throws a light on the spirit and conviction about good governance practices;
“I am not bound to win but I am bound to be true. I am not bound to succeed but I am bound to live by the light that I have. I must stand with anybody that stands right and stand with him while he is right and part with him when he goes wrong.”
Conclusion
Corporate Governance is constant journey and not a destination. Virtuous governance inculcates the culture of transparency and values ensuring corporate success and growth of the economy. The gamut of governance need to be refined constantly by Corporates on the basis of national as well as international perspective as well as by strengthening complaints redressal mechanism, evaluation of board performance, employee satisfaction, leadership development programs.
Corporates need to continuously focus on achieving high levels of corporate governance by enhancing levels of transparency, fairness and accountability. Good governance ensures that the constituents such as stakeholders’ lenders etc. are taken into consideration with respect to their relevant interest about the company’s business and activities. Strong demonstrated ethical standards will be a key differentiator for good governance. For good governance to succeed in dynamically changing circumstances, leadership will have to evolve solution on continuous basis.
Good governance practices must be effectively implemented and enforced preferably through self-regulation and voluntary adoption of an ethical code of business conduct. This will boost investor confidence resulting in increased investment and long-term growth.
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Your explanation of Corporate Governance is unique in a nut shell. If you don’t mind, I would like to add one aspect that is Time Management, which plays a vital role in Modern Management.
Thanks.