Why Corporate Governance Must Change with the Times

Corporate Governance under Fire

It would be an understatement to say that corporate governance in recent years has been in the news for all the wrong reasons.

Starting with the much publicized spat between the members of the TATA group which is a venerable institution with more than a hundred years of history, to the very bitter feud between the founder members and the present management of Infosys, including the shenanigans of the Harvey Weinstein case, corporate governance has become a bad word and earned itself a dubious name in light of these cases.

These cases pertain serious allegations of conflict of interest, sexual harassment, and the plain family rivalry have either been covered up or have led to much washing of dirty linen in public. Indeed, these examples serve a bad precedent and set a wrong example for the emerging generation of employees.

Poor Corporate Governance sets wrong precedents and bad role models

They might draw the wrong conclusion that anything goes in organizations, and all that is needed is to ensure that media savvy figures and an army of PR or Public Relations experts are all that is required to whitewash wrongdoing apart from having the right contacts in the right places that would be parallel to the “wink and nod” culture that permeates contemporary organizations.

This is certainly not the way to go as venerable and reputed institutions as well as startups and Unicorns with much potential can be driven to collapse due to the actions of the top management.

Worse, when the top tier of organizations themselves behaves this way, what is to prevent rank and file employees from taking matters into their own hands and creating a culture of unethical and immoral behavior?

Moreover, what is to prevent the entire organization from collapsing under the weight of its contradictions as well as due to the actions of the employees at all levels which can lead to serious problems down the line.

Is Business as Usual Sustainable?

In addition, what is the message that is being sent as in the case of the Uber board where the founder and other members were alleged to have engaged in what can be mildly called gender discrimination? Indeed, the fact that for a long time, Harvey Weinstein’s actions were covered up by the lawyers speaks volumes about the nature of corporate governance at the moment where anything is permitted as long as “the show goes on” which means that as long as the music plays, everything is business as usual.

However, it is certainly not the case that the attitude of business as usual in the face of wrongdoing is sustainable over the longer term. As books such as “Emotional Intelligence” state, longer-term success is only guaranteed when employees and managers empathize with each other as well as are emotionally competent to deal with the problems of others and more importantly, can manage their own emotions very well.

Longer Term Sustainability is the Key

Indeed, this means that only those organizations survive that are built on good corporate governance as the cases of Enron and WorldCom show us.

In both these cases, the entire top management indulged in extremely unethical behavior wherein accounts were cooked, and profits overstated as well as debts covered up.

Again, this is what happened to the Indian Software major, Satyam services, that ultimately resulted in the sale of the organization to Tech Mahindra.

Thus, it is clear that while poor corporate governance can continue over the medium and the shorter terms, there is no guarantee that it can be continued and sustained over the longer term.

This is the lesson that we can learn from the numerous examples that have been cited here.

Risk Taking and Passivity

Further, while we are not advocating a moralistic approach that leads to paralysis of decision making and an overall culture that is risk averse, what we are saying is that there must be checks and balances in place that would ensure that any cases of poor judgment and ethically questionable actions are corrected before they do lasting damage to the longer-term prospects of the organizations.

In other words, the key point to note here is that there must be institutional safeguards to protect organizations from straying too far from the path and this means that such checks and balances must be put in place to prevent the entire organization from being tainted.

Moreover, the fact that Utopian ideals must be followed by realistic actions means that while one cannot have a purely moral universe, on the other hand, one cannot be without scruples completely as that would be tending to the other extreme.

Striking a Balance

In short, there needs to be a balance that ensures continuity, and at the same time, a culture of risk-taking that is so crucial for business success. Thus, the key aspect here is to find the balance between these competing impulses that would determine the future of the concept of corporate governance.

Conclusion

Lastly, we are living through times that are very demanding for all as the convergence of several waves of change and the resistance to such change are all bouncing into each other and hence, it is indeed the case that corporate governance must change with the times to ensure that it does not fall into the trap of short-termism and at the same time, does not shy away from being aggressive in the marketplace.

To conclude, as we grapple with change and continuity, risk and passivity, corporate governance must reflect the contemporary realities and at the same time, not lose sight of its history.

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