Corporate governance: Vital aspects and reality

A recent report has assessed that corporate governance practices across the top 150 companies in India have improved but female representation on the boards of companies is still skewed. While provisions like having a whistleblower mechanism have been widely accepted, having a woman director on the board is still a challenge for most of the firms. According to the report, only 7.0 per cent of the directors are women in India's top 150 companies in terms of market capitalisation.
Side by side, Chris Pierce, CEO, Global Governance Services, an authority on corporate governance, opines that while India is hoping to attract foreign direct investment, global investors are still cautious when it comes to taking a call on the country, mainly due to its corporate governance issues. While India is making all the right moves in accordance with the Companies' Act around independent directors, a lot more responsibility needs to be fixed.
At this juncture, realistically speaking, the essentials are missing even in the government sector. Is it not a fact that the corporate governance processes are not being rightly followed even in the government sector? Is it not a fact that even in the case of selection/appointment  of trainers for one of the national level banking training centres the most eligible, highly qualified (having a doctorate degree) and experienced candidate possessing exposures on the national and international levels was shown the door for reasons best known to the ultimate selector? Is it not the fact that the recruitment policy followed is a murky and eye-washing one? Time has come to see when the decision is taken it must be impartially judged by another body so as to ensure transparency.
Are the boards really engaged in meaningful selection and evaluation processes rather than ticking boxes? Actually, many boards have internal evaluations conducted by the chairman or the lead director; though these evaluations are well-intentioned, the directors may be unwilling to disclose the perceived weaknesses to the person most responsible for the effective functioning of the board. Now that a Corporate Governance 2.0 Approach would engage an independent third party to design a process for the reviews - the very process would include grading directors on company-specific attributes so that the evaluation stays relevant.
Any deviation found must face stern action so as to wipe out such a practice from the 'new and emerging India'. Partiality, nepotism and narrow outlook must be done away with. Dealing with the public money calls for transparency and accountability, among others. PSCs play a key role in all of the sectors of the economy. Need is there for increased transparency, disclosure and accountability in the public sector. Weaknesses in governance mechanism cause losses to public enterprises - so the culprits should not be spared.
Added to this, the well-known approach clarifies, "director evaluations would be shared with the direction with comments reported verbatim when necessary to make clear any opportunities for improvement. They would also go to the chairman or lead director to provide objective evidence with which to have difficult conversations with underperforming directors. Meaningful board evaluations would also have more subtle effects on board composition and boardroom dynamics. Foreseeing a rigorous review process, underperforming directors would voluntarily not stand for re-election. In fact, directors would work hard to make sure they were not perceived as underperforming."
In fact, corporate governance refers to the set of systems, principles and processes by which a company is governed inasmuch as they provide the guidelines on how the company can be directed or controlled such that it can fulfill its goals and objectives in a manner that adds to the value of the company. And at the same time it is also beneficial to all stakeholders in the long run. Needless to say, those stakeholders in this case would include everyone ranging from the board of directors, management, shareholders to customers, employees and society.
The very mechanisms, as detailed by the Financial Stability Institute  (Bank For International Settlements), entail assignment of decision making powers, articulate corporate strategy, provide checks and balances, monitor potential conflicts of interest, develop an incentive structure, foster interaction between board and senior management, provide an audit structure and set corporate values and standards. The question remains to what extent it is followed in our case. Examples are not far to seek.
Basically, CV means the steering of a ship. It also stands for the art of governing a state. In fact, government refers to the sum of state institutions and laws and thus can be described as the complex of political institutions, laws and customs through which the functioning of governance is carried out in a specific political event whereas governance has a wider focus. In other words, this has reference to what is done by a government plus the manner in which power is exercised in the management of a country's economic and social resources for development.
Whether it is called corporate governance or IT governance, urban governance or global governance, the same refers to informal means of the execution of power plus the decision-making process taking place outside state institutions organised by business corporations or civil society. Governance occurs at limited economic sector, at various levels as well as for the whole globe. That is why it essentially recognises the power which exists inside and outside the formal authority and institutions of government and emphasises the process of decisions made on complex relationship between many actors with different priorities, and is thus a reconciliation of these competing priorities which is at the heart of the very concept of governance.
The art of good governance thus calls for devising strategies through which the various actors/stakeholders come together to solve problems, each taking on these issues for which they are well equipped and thus are contributing in a constructive way to the very governance of the institution.
The structures, functions, processes and organisational traditions that a board or other decision making bodies use must ensure that the mission of the organisation is accomplished.
The functions of governance are, thus, far from being small.
The modern corporation operates within an ever-changing framework of law and is subject to the direct control of the board of directors. In this context, the board must ensure the law is adhered to while simultaneously ensuring that strategies for long-term success are set and implemented. No doubt, doing both successfully can be very difficult. It is, therefore, necessary to achieve a balance and alignment among external and internal controls, risk management and competitive behaviour.
In fact, corporate governance should be regarded as a process and structure that is used to direct and manage business and enhance shareholders' value as well as ensure financial viability. In a word, the very purpose of governance is to build and strengthen accountability, credibility, transparency, integrity and, of course, trust. That is why appropriate governance practices protect shareholders, customers, public in general, supervisors and the very employees.
THE UPSHOT: CV focuses on values, principles, goals and rules that guide the system of power and mechanism of management in corporations. Good governance practices seek to maximise shareholder wealth while respecting the rights of other stakeholders and, therefore, minimising conflict. Efficient governance also helps strengthen the company, reinforces competencies to face new levels of complexity, broadens the strategic bases of value creation and harmonises interests. At the same stroke, the proper observance increases investor trust, strengthens capital markets and becomes a factor for economic growth and value generation inasmuch as it contributes towards less volatile corporate results — via promoting strong viable and competitive corporations in an increasingly fiercely competitive globalised world economy.
Focusing on matters relating to corporate governance such as board size, classification of directors, roles and responsibilities of independent directors, risk management, vigil/whistleblower mechanism, related party transactions and codes of conduct for the board and senior management, all call for top observance at this juncture.
Dr BK Mukhopadhyay, a Management Economist, is
attached to the West Bengal State University, India.  [email protected]