Effective Corporate Governance Has to be Practiced at all Levels of the Organization
Some Recent Scandals Involving Corporate Governance
The recent months have seen a spate of scandals involving corporates pertaining to corporate governance.
From the Indian IT (Information Technology) bellwether, Infosys, to the hottest startup and Unicorn (startups that are valued at more than a Billion Dollars) and the TATA group to name a few, the corporate world is agog with governance and ethical and normative codes of conduct being talked about openly.
Indeed, if there is a single thread running across these and other scandals involving corporates, it is that effective corporate governance has become a bone of contention with the leaders of these organizations and other stakeholders.
Cultural Mismatch leading to Questionable Corporate Governance
For instance, in the case of Infosys, the founders who relinquished control to a new board and handed over the reins of the company to an outsider, Vishal Sikka, have been having run-ins with the latter over issues related to executive compensation and severance pay.
Indeed, many commentators and experts are pointing to the mismatch between the cultural mores of the founders and the new team since the former have built the company from scratch and imbued Infosys with a unique work ethic and culture and the latter want the firm to be more aligned with the challenges of the future.
Thus, in this case, corporate governance issues have cropped up mainly over the business practices and the vision for the future as exemplified by the gap between the founders and the new board.
The Perils of Fast Paced Growth
On the other hand, the ride-sharing firm, Uber, which is a giant in its own right and which has revolutionized the way in which transport is organized, finds itself in soup because the board members who include the founder, Travis Kalanick, have been accused of gross ethical violations as well as serious charges of sexual harassment and the improper way in which Uber has dealt with violations regarding ethical and gender based discrimination.
Thus, here is firm that prides itself on being the disruptive force shaking up the world of personal transportation finding itself in hot water mainly because there is perceived to be a rot at all levels of the organizational hierarchy related to ethical and normative rules of conduct.
Vision Not Percolating Down the Hierarchy
Further, firms such as Fidelity and the TATA group have similarly been accused of flouting and violating corporate governance norms mainly because the vision from the top is not shared down the hierarchy and being behemoths, the executive management can only take things to a certain point after which bad Apples and stray instances of bad behavior need to be taken both at a systemic and organizational level as well as at an individual level.
Indeed, the problem with these firms is that being dispersed across the world and being large organizations, the employees down the hierarchy have a tendency to misinterpret and misjudge the norms and rules.
This also applies to firms such as Volkswagen wherein in the pursuit of profits and being the first to reach the market, gross violations in the way in which the automobiles have been made have come to light.
Thus, as can be seen from the examples cited so far, corporate governance cannot be left to the top tier alone, and at the same time, the top tier too is not exempt from being unethical and flouting normative rules of conduct.
Indeed, if there is a lesson to be learnt from all these disparate and different organizations, it is that corporate governance is something that has to be incubated at the top, imbued at all levels of the hierarchy, and infused into the corporate DNA or in other words, ensuring that there is an organizational wide culture of ethical and normative conduct.
Everyone on the Same Page Is What Is Needed
It is clear that the executive management has to come up with a vision and mission policy and then, ensure that it percolates down the hierarchy wherein all employees at all levels are on the same page as far as mutual agreements and codes of conduct are concerned.
At the same time, the executive management too has their task cut out as they need to walk the talk and ensure that their vision and mission are not meaningless statements and instead, carry weight when they start leading by example.
Indeed, both Infosys and the TATA group have had some exemplary individuals as leaders, and often it was said that the halo surrounding them was enough to make the employees accept them as their leaders.
However, it was also said that sometimes, there was a misalignment between the top and middle layers since the pursuit of bottom-lines and cutting costs meant that the vision and mission were being paid lip service and not really practiced or followed.
Thus, the other lesson that one can learn is that a pragmatic approach to corporate governance might do wonders rather than one single star or leader attempting to mold the organization in their own way. Having said that, it must also be noted that a pragmatic approach to corporate governance does not mean a Wink and Nod attitude towards ethical and normative rules of conduct. Instead, what is needed is an approach that combines the lofty vision with that of Earthly realities and on the ground exigencies so that corporate governance is practiced at all levels of the organizational hierarchy.
To conclude, there is not one right approach to corporate governance, and the way in which it is practiced differs from organization to organization and depends as much on the leaders as it is on the middle and lower tiers.
- Shareholder Ownership and Control
- Should Long Term Shareholders Have Double Voting Rights ?
- Book Building Process - How Are Prices of Shares Decided in an IPO ?
- Corporate Governance in the West
- CG as a Metaphor for the Economy
Authorship/Referencing - About the Author(s)
The article is Written By Prachi Juneja and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.