Today's Paper BUSINESS
Published: November 7, 2011 00:00 IST | Updated: November 7,
2011 04:21 IST
Need for sustainable wealth creation
L. V. V. IYER
The rash of protests across the Atlantic over corporate greed in
recent weeks is symptomatic of a deeper malaise,something which
cannot be wished away. Unless global economies take serious note of
the simmering anger andsense of alienation of the vast numbers,
there is a real danger of a social upheaval of global dimensions.
Apart frommacro economic measures to tackle the deep inequalities
between the 1 per cent and the 99 per cent of thepopulation as in
America, the failure of the overarching shareholder-centric
corporate governance model of the U.S.has been one of the main
factors for such inequalities and hence needs to be
recalibrated.
Shareholder-centric model: It can be said that an overarching
shareholder-centric corporate governance modelpractised in many
countries, including India, results quite often in the
redistribution of wealth and not so much inthe creation of wealth.
For want of a sustainable balancing of the interests of the various
stakeholders in a corporatebody, such an overarching
shareholder-centric corporate governance model results in a skewed
redistribution ofwealth accompanied by wide inequalities. This
phenomenon is taking place in the Indian corporate sector also.
If India has to come out of deep poverty, sustainable wealth
creation has to take place. Although, socialsubsidisation by the
government can alleviate poverty in the short-term, the long-term
solution to eliminate povertycan only be through sustainable wealth
creation.
An inclusive model of corporate governance may be defined as a
set of systems, processes and principles, whichensure that a
company is governed in the best interests of all stakeholders. The
set of systems that help the task ofcorporate governance would
include certain structural and organisational aspects of a company.
The set ofprocesses which help corporate governance would embrace
how things are done within such structures andorganisational
systems. Principles would embrace those aspects of corporate
behaviour and conduct which societyexpects of a good corporate
citizen. When you talk of the stakeholders they do not mean only
shareholders; acompany would typically have five stakeholders,
namely, employees, customers, suppliers, community andshareholders.
To be able to serve the best interests of all stakeholders, a set
of systems, processes and principleshave to be put in place.
Soft aspects: While various regulations for corporate governance
in India and abroad have talked of the varioussystems and
processes, the principles which a corporate governance model should
embrace to take care of bestinterests of all stakeholders have
largely remained un-emphasised. These are the soft aspects which in
some waysdrive wealth creation in a sustainable manner.
Employee innovation and development: The first principle is to
enthrone merit in the organisation. A merit-basedorganisation where
leadership qualities are constantly nurtured is the organisation of
the future. If Indian corporatesector has to create wealth on a
sustained basis, it has to share wealth and power with the most
outstandingemployees. Venture capitalists in India have not shown
the daring and the conviction to support some of the bestideas.
This has to happen to make the Indian corporate sector one of the
most innovative and creative engines ofwealth creation. Companies
have to encourage some of the most outstanding employees to
innovate and create evenif it were to result in failures. Stock
option schemes in India have now lost the attraction. It is time
the corporatesector offered attractive stock option schemes to
reward the most outstanding and meritorious employees.Succession
planning has to be taken seriously even in family-run companies so
that leadership positions are filledup only on the basis of merit
and performance. In order to create a deep sense of belonging among
the employees, itis imperative that the affairs of the company are
carried on in a fair and transparent manner.
Creating customer satisfaction: When it comes to customers,
companies should give value for money. Customerpreferences and
needs should be constantly studied to create products and services
for customer delight.
Nurturing suppliers: Suppliers are the backbone of the
manufacturing sector. The corporate sector has not generallyfelt
the need to nurture quality suppliers. Suppliers are stakeholders
who have to be nurtured, to achieve customerdelight.
Supporting community: Interests of the immediate community with
which companies have interdependence, wouldhave to be taken care
of. Most of the societal problems that the corporate sector causes
are out of the absence of
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genuine concern for the members of the immediate community which
has been displaced or which has sufferedenvironmental degradation
by companies. Unless a humane and holistic approach is adopted in
this respect and thegenuine concerns of such community are
addressed, any model of corporate governance would be a farce and
wouldnot create wealth in a sustainable manner. Hence, an inclusive
corporate governance model can ill-afford to ignorethis aspect.
Once the interests of the above stakeholders are taken care of,
with investor-friendly measures the interests of theshareholders
would get automatically looked after.
In sum, like Sec. 172 of the Companies Act, 2006, of the U.K.,
statutory provisions would have to be built into ourCompany Law so
that an inclusive model of corporate governance becomes the
statutory duty of the board. Timeseems to be propitious to bring in
this important change.
L. V. V. IYER
Corporate Lawyer
He can be contacted at:
[email protected]
Although, social subsidisation by the government can alleviate
poverty in the short-term, thelong-term solution can only be
through sustainable wealth creation.
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