Corporate governance (CG) simply shows a path in which the management and functioning of the company should be carried out. Transparency, accountability and disclosure being its major pillars, governance is said to be inspired by conscience and honesty. However it is not as simple as it sounds and it has become a focal point of discussion among the governments and the corporates since a few decades. The world is well aware of what CG failure looks like, not to forget the latest controversy surrounding BharatPe.
A few esteemed names often make headlines for having the best Corporate Governance (CG) practices in the market. These names are none other than Infosys, HDFC bank, Hindustan Unilever Ltd, Wipro and many other conglomerates. What makes these companies stand apart to be the best governed companies?
Whenever we hear the term ‘Corporate Governance’, we come across some repetitive terms such as board structure, Independent Directors, Audit and Gender Diversity. It sure comprises of these factors but a broader perspective of the term is inclusive of many more factors and companies have successfully infused these into their governance to be the best.
The strategic capabilities of the Management strengthens governance. For example, Infosys was the first company in India to introduce the Employee Stock Ownership Plan (ESOP) and other companies have followed its footsteps. Increasing Stakeholder Engagement and Stakeholder Trust is a priority for companies who wish to make their companies stand for good corporate governance. Thus adoption of policies towards such cause for example ‘the Whistleblower policy’ resorted to by many companies such as Tata Power, HUL, Infosys etc have ignited the trust of shareholders. Business resilience is another area less talked about. There can be no better example than Reliance Industries who has diversified its business activities across various streams and sectors ranging from telecom, to energy, to retail shopping outlets to online stores to what not. It is the agility, willingness to innovate and stay ahead of the game that good governance offers and ensures sustenance of the business in long term.
It is also important to assess, how focussed is the Board to have a long-term vision to achieve organizational longevity? We can take the example of “YKK”, the global market leader for Zippers in the world for more than 80 years. The factor that contributed to its success is mainly great governance that included ample stakeholder engagement at all levels, maintaining the quality of its products, low cost of products, diversification, patenting their manufacturing equipment and focus on bringing sustainability into its products.
Board Diligence is another factor that contributes to a good governance of a company. This can be led through a legendary example where the board fired founder of Apple Steve Jobs due to board tensions between Jobs & CEO. However later when the company started facing issues, it appointed Steve Jobs back this time as a CEO who later went on to make Apple the biggest tech company in the world.
Business ethics is said to form the essence of corporate governance. On the environmental and social front, a real ethical business would not engage in activities that destroy human rights or environment. Thus, decisions pertaining to ‘E’ & ‘S’ are a part of ‘G’. Each of these factors are inextricably linked to each other. The alarming realities have made the companies around aware and have compelled their management to act in a sustainable manner. Kellog’s, the cereal company recycles 76% of its packaging and plans to use sustainable packaging by 2025. Accenture has focussed on reducing the carbon emissions of its employees by 52%. JFE Steel has decided to test ferro coke production that can reduce energy consumption & CO2 emissions in ironmaking process by 10%. ITC derives 41% of its total energy consumption from renewable sources. Estee Lauder sends no waste to landfills and recycles/incinerates all its waste to convert that into energy. The same is done by IKEA. Britannia has reduced sugar content per serving of product by 5% and fat content by 6% over FY16-21 and targets to achieve 8% reduction by FY24. Marico has achieved 81% reduction in Scope 1 and 2 emissions intensity. It has also achieved 100% water offset by creating 2.4bn+ litres of conservation capacity. We are in fact surrounded by hundreds of such examples around us. Such decisions provide an insight to the shareholders of the board awareness and they feel that their support to sustainable companies is a small little step to save the environment that we live in.