Event ReportsPublished on Apr 08, 2013
At a workshop on responsible corporate governance at Observer Research Foundation, it was noted that corporate governance and business responsibility are no longer add-ons to markets; they are integral to them.
Corporate governance, business responsibility integral to market

It is widely accepted that the onus for the responsible governance of corporations lies mainly with senior management and board members. Compared with the singular objective of maximising shareholder wealth, adding to stakeholder value is important as businesses and the communities and markets within which they operate, are inherently interlinked.

These are precisely the sort of issues that were debated and discussed at the workshop on "Responsible Corporate Governance" hosted by Observer Research Foundation, in partnership with GIZ and the Indian Institute for Corporate Affairs (IICA), the nodal corporate governance and business responsibility think tank of the Indian Government, on 8 April, 2013.

The stakeholder workshop saw participation from a wide range of experts and commentators on corporate governance and business responsibility, including from the government, corporations, financial institutions and other market participants.

Particular interest has been generated among stakeholders following the introduction of the MCA National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business (NVGs) in 2011; a recent SEBI directive to the top 100 listed companies to disclose along the NVGs framework, as well as the Companies Bill (2012) which mandates a 2% PAT allocation to CSR activities.

The shareholder wealth maximisation model is premised on the principal-agent paradigm. That is, governance rules and process tend to be designed to control managers and other business operations in order to ensure the owner’s interests are protected and facilitated. Meanwhile the stakeholder responsibility discourse focuses on minimising multiple stakeholder risks; and broadening the value created beyond that for shareholders. These are themes that are very relevant to India -where both resource scarcity and socio-economic fragilities threaten the competitiveness of businesses.

At the outset, it was noted that "In India, like in most other places, corporate governance and business responsibility tend to be viewed as being mutually distinct".

However, a joint study by GIZ and gTrade, snippets of which were shared with the workshop participants, shows that "the correlation between adherence to corporate governance regulations and business responsibility norms is positive even in the Indian context". The study provides an empirical assessment of the corporate governance and business responsibility performance of the largest listed and unlisted corporations.

Companies that already have the basic mandatory processes and governance structures in place generally are more likely to also be the ones that tend to adhere to voluntary norms. Discussions also emphasised the need for mandatory disclosures on BR as a key lever to sustainable business and economy, besides the need for a more proactive and BR responsive financial sector.

Concomitantly, Dr. Bhaskar Chatterjee, CEO and DG of the IICA, noted that with regard to voluntary and mandatory policies on sustainability, what is needed is "something in the middle". Specifically, we also have to think of why "enforcement is a big factor" in determining compliance, and simultaneously, why companies are able to adhere to certain norms without mandatory drivers.

It was noted that corporate governance and business responsibility are no longer add-ons to markets; they are integral to them. Therefore the regulatory paradigm must holistically view them as part of the same overarching discourse on governance, strategy and accountability. This would then form the framework for outlining the contours of ’responsible corporate governance’.

(This report is prepared by Vivan Sharan, Associate Fellow, Observer Research Foundation, Delhi)

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