Corporate World Governance And Sustainability Business Essay
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Published: Mon, 5 Dec 2016
Purpose- The main idea is to read percept of business is Business which has come a long way as social contribution which emerges as major source of revenue for business organizations. The ways companies do their business create great impact on environment. This problems challenge every player on business to develop a sustainable global economy: an economy that the planet is capable of supporting indefinitely. Strict government regulations are issued, and more and more companies are “going green”. Today Corporate governance and Corporate Social Responsibility have become a world wider concept where organizations consider the interests of society by taking responsibility for the impact of their activities. The business in environment, education, healthcare and other infrastructure have “hard” economic impact. In different areas of the world, the focus of organization has now been shifted from being profit-centric to more customer orientation.
Design/Approach – This paper attempts to present the holistic overview of the Corporate Social Responsibility in India with reference to its contribution in Sustainable development that goes beyond the mere commerce of product and services in an attempt to increase the economic growth, employment growth and growth of natural resources. Paper argues about Corporate Governance problems in India, Impact of Corporate Governance over performance and also challenges to bring tighter surveillance over corporate behavior. Corporate Governance practices have become an essential prerequisite for the ability to acquire and retain financial resources necessary for restructuring long term investment and sustainable growth.
Research Implications -Paper analyses overall strategies for Sustainability that needs clear framework to give direction to those activities. Companies need to create a vision of a sustainability showing the way products and services must evolve and what new competencies will be needed to get there. Moreover, companies’ clear and fully integrated environmental strategies should also shape the companies’ relationship to customers, suppliers, other companies, policymakers, and all its stakeholders.
Practical Implications- Companies must educate customers to prefer products and services that are consistent with sustainability, not just to market its product. The reason is the responsibility for ensuring a sustainable world falls largely on the shoulders of world’s enterprise, public policy, and individual consumption patterns by consumer. Corporations then can and should lead the way to helping to shape public policy maker and driving changes in consumers behavior.
Originality-The goal of the paper is to discuss, concept, approaches, practices of Corporate Social Responsibility and Corporate Governance and how these both together build Sustainable development processes within our country
Key words: Corporate Social Responsibility, sustainable development, Corporate governance, strategies.
The increasing trans-national transactions and the changing market dynamics has brought an urgent need for research and comparisons of the corporate governance mechanism of India.
Corporate governance basically denotes rule of law, transparency, accountability and protection of public interest in the management of a company’s affairs in the prevailing global, competitive and digital environment. The stand of Enron Corporation, Satyam and others has questioned the efficiency of corporate governance in the developed as well as developing countries. It is the most important global issues with serious challenges and implications on almost all sectors. Surging economies including India, are coping with issues related to poverty, child rights, community welfare etc and are a hotbed for an innovative Governance Scenario which is still shaping up. As India rides the wave of economic boom and commercial success, corporate governance is presenting itself both as an opportunity and an important requirement for corporates to be engaged in. This will help corporate to contribute towards faster and more balanced growth of our society. If we study the global scenario, all development has taken place in those countries where corporate governance activities are to the maximum. To understand the various dynamics involved in the corporate governance, reports of various committees including the Cadbury Committee of England, the Sarbanes-Oxley Act (SOX) of 2002 of U.S.A., The Kumar Mangalam Birla Committee, the Naresh Chandra Committee, the Narayana Murthy Committee,and the Dr. Jamshed J. Irani Committee are the few ones. The essence of corporate governance is the exercise of authority, direction and control. In this present corporate era, “share ownership” is the superlative explanation to the exercise of authority. The transition from State governed to the market oriented, globalized, privatized, and liberalized economy, brought the issue of corporate governance to the fore. Sensitized and efficient corporate governance ensures less option for promoters like Mr. Ramalinga Raju to play with people in particular and State as a whole. It’s the high time for India and others to relook the loopholes of corporate governance of their country and ensure welfare for the people at large. Pandey, Goel & Ahmad(2009).
CORPORATE GOVERNANCE AS
… to deliver and improve what customers and other stakeholders expect.
THE SUCCESS PILL CALLED ‘SUSTAINABILITY’
â€¦ Meeting needs of today without compromising tomorrow cit3.
â€¦ In simple terms it’s nothing but shortcuts to realize immediate business outcomes but
there is no arguing that in long term this approach always wins. Sheth(2011)
… it’s almost akin to doing your karma as per your dharma in a way that does not hamper the interest of any stakeholder group. Sheth(2011)
This is a Serious Business
The impact one company has on the community and the environment cannot be ignored. CEO’s used to frame thoughts like these in the context of moral responsibility, but now, it’s also about growth and innovation. In the future, it will be the only way we do business.”
Source: Paul Cescau, CEO, Unilever (Gracia, 2011).
“Sustainability has moved from the fringes of the business world to the top of the agenda for shareholders, employees, regulators, and customers. Any miscalculation of issues related to sustainability can have serious repercussions on how the world judges a company and values its shares.”Source: Sunny Misser, Pricewaterhouse Coopers global leader of Sustainable Business Solutions. (Gracia, 2011).
Definitions of Corporate Governance
Corporate governance is a very poorly defined concept; it covers so many different economic issues. It is difficult to give a first class definition in one sentence. Corporate governance has succeeded in attracting a great deal of interests of the public because of its obvious importance for the economic health of corporations and society in general. As a result, different people have come up with different definitions that basically mirror their special interest in the field.
“Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society”. Cadbury(2000).
“Corporate Governance is about promoting corporate fairness, transparency and accountability.” Wolfensohn(1999).
“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”. The Institute of Company Secretaries of India
Benefits of Corporate Governance
“Corporate governance refers to the structures and processes for the direction and control of companies. Good corporate governance contributes to sustainable economic development by enhancing the performance of companies and increasing their access to outside sources of capital”. IFC World Bank Group
Corporate Governance brings in, that employees enjoy the improved systems of management and the community at large enjoys the fruits of better economic growth in a responsible way.
Our companies need to give a clear-cut signal that the words “your company” have real meaning. Cadbury (2000).
Corporate governance and economic development are intrinsically linked. Effective corporate governance systems promote the development of strong financial systems-irrespective of whether they are largely bank-based or market-based -which, in turn, have an unmistakably positive effect on economic growth and poverty reduction.
The Reality of Corporate Governance
The problem is to see whether the corporate governance standards adopted by firms in India are positively, negatively or more affecting the firms’ performance. It has been seen that as ownership concentration increases, the incentives and the abilities of shareholders to properly monitor managers increase too. This creates beneficial effect for firms in the sense that performance or profitability improves. Policy issues later, governance stands first due to corruption scandals that are believed hurts India’s emerging economy.
Source: Deepak Parekh, Chairman HDFC, In India’s Economic Reform Process, ‘Corporate sector is equally responsible’. (Hindustan Times, 2011)
Requirement of New corporate paradigm
Start of a transition: from economicism to humanism.
Corporate responsibility: extended voluntary regulation of the effects of our activity beyond what is legally enforceable. Government may push for profit-linked CSR activities
Parliamentary standing committee is in favor of 2% CSR spending,
In India, while most companies carry out CSR programmes as part of their charitable activities, Companies such as HUL, ITC, SBI, Bharti Airtel have included CSR in their core business model. (Hindustan Times, 2011)
Good corporate governance may consider to be included in this concept:
â€¢ Transmission of true, comparable information.
â€¢ Safeguard of the owner’s interests.
â€¢ Intervention system if the company’s management bodies do not act adequately, Mittal(2011).
Definitions of Sustainability
A whole-systems, cross-sector Issue, Brundtland Commission (1987) “How can the present generation meet its needs in ways that are not only economically viable, environmentally sound and socially equitable but that also allow future generations to do the same”.
“Company’s ability to achieve its business goals and increase long-term shareholder value by integrating economic, environmental and social opportunities into its business strategies.” Profiles in Leadership, (2001)
‘development that meets the needs of the present without compromising the ability
of future generations to meet their own needs’.
Key aspect of sustainability
Sheth(2011), It is a Triple Bottom Line which consists of Social, Environmental, Economic issues.
NEW BUSINESS MODEL GOVERNANCE AND SUSTAINABILITY
The term can refer to internal factors defined by the officers, stockholders or constitution of a corporation, as well as to external forces such as customer groups, clients and government regulation. A sincere commitment to creating and sustaining an ethical business culture in public and private sectors. Sheth(2011).
Business Case for Managing Sustainability
“In an increasingly interconnected world, social, environmental and governance issues are no longer just “soft” business concerns but are increasingly becoming material for long-term viability because helping to build social and environment pillars makes the global marketplace stronger”
PROCESS-DRIVEN OR MATRIX-BASED APPROACH
One of the important concept of sustainability is defining materiality basis of the stakeholder engagement. Company itself decides which concerns are reasonable and need to be addressed. A matrix based approach is often followed for tracking sustainability as then the benchmarking on regular intervals becomes process-driven and starts seeping into the company culture.
Sheth(2011), The word ‘sustainable’ in context of enterprise would mean ‘optimization’ and ‘efficiency’. And that is essentially what every enterprise looks for as that results in long term profits and also in a sustainable enterprise. Just like every critical factor for scale-up involves the cost factor in short term and operating profits in the long run, entrepreneur also needs to identify future areas of competencies which can be clubbed as ‘sustainable/green’ initiatives today. It will lead to key differentiation and core competitive advantage in the near future.
Trend analysis: After doing an environment scan of the industry and its settings it is seen what kind of sustainability initiatives are being practiced in the sector globally.
Local impact: Identifying the local context and specifically the constraints under which a company operates, following the constraints will themselves lead to innovative solutions. Sheth(2011)
Managing Sustainably and Shareholder Wealth
There is a growing body of evidence that companies which manage environmental, social, and governance risks most effectively tend to deliver better risk-adjusted financial performance than their industry peers. Moreover, all three of these sets of issues are likely to have an even greater impact on companies’ competitiveness and financial performance in the future.
Stakeholder engagement driven innovations
Empower stakeholder groups specifically to think ‘sustainable’ and facilitate the process which will lead to ongoing innovation which will advance the sustainability journey.
Many Big companies are doing greening of the supply chain. This is, the entrepreneurs who are servicing these companies come under the scanner and are asked to start becoming ‘GREEN’
Sheth(2011), In case the business has already opted to become more sustainable in small bits, it is much easier. And far more cost effective than to implement changes at one go. Industry pressure from International NGOs is increasing on cleaning of the supply chains in garments, apparels and accessories vertical. This entails eliminating child labour, introducing fair wages, cleaner and greener methods of production.
Top 12 Most Commonly Used Sustainability-Related Practices
Ensure the health and safety of employees
Ensure accountability for ethics at all levels
Engage collaboratively with community and nongovernmental groups
Support employees in balancing work and life activities
Encourage employee volunteerism
Involve employees in decisions that affect them
Provide employee training and development related to sustainability
Reduce waste materials
Highlight our commitment to sustainability in our brand
Improve energy efficiency
Work with suppliers to strengthen sustainability practices
Get groups across organization that are working on sustainability-related initiatives to work more closely together
Corporates have a large role to play in shaping our country’s success, and they must be committed to leveraging their financial, technical and intellectual resources to design and implement sustainable solutions that benefits all.
Sustainability has come with a bang and is here to stay till it becomes an intrinsic part of every company’s DNA. It is akin to the quality revolution of the 80s which was debated, discussed and finally integrated into the company culture in such a way that now it’s impossible to imagine a world without quality.
As Indian companies compete globally for access to capital markets, many are finding that the ability to benchmark against world-class organizations is essential. Indian corporations are emerging on the world stage and discovering that the old ways of doing business are no longer sufficient in such a fast-paced global environment.
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