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Corporate Governance and Business Responsibility

An Empirical Assessment of Large Indian Companies

GIZ Study booklet

It is widely accepted today that the onus for business responsibility must lie with senior management and Board members of corporations. The contours of what constitutes ‘responsibility’ though are still under discussion and description. However, there is a broad consensus that this must imply integration of environmental, social and economic priorities within the business model and governance processes of companies.

The Board of Directors of any firm have a significant role to play in terms of providing strategic vision as well as performing critical oversight of business operations. Therefore any efforts at embedding sustainability within business operations, whether through mandatory or prescriptive frameworks, must originate at the level of the Board.

Additionally, the entire market ecosystem within which firms operate is also relevant to the business responsibility discourse. For instance, the performance metrics of production supply chains are often overlooked by companies. Even within large companies, oversight of supply chains, are limited to negotiations on price points and timelines. This must see radical transformation. Similarly, long term risk assessment frameworks around environment, social responsibility and good governance practices must become a part of decision making processes at the highest levels.

Lack of awareness at the level of the Board is not the only impediment to holistic integration of sustainability priorities in the case of large Indian companies. For enhanced community engagement to become a pillar of business operations, systemic policy hurdles need to be addressed (for example: inefficient licensing regimes in critical sectors).

In India, like in most other places, corporate governance and business responsibility tend to be viewed as being mutually distinct. However, this study shows that there is visible correlation between adherence to corporate governance regulations and business responsibility norms – which is precisely the paradigm of ‘responsible corporate governance’ that is referred to in this research report.

This study establishes that large companies that already have the basic mandatory processes and governance structures in place are more likely to also be the ones that tend to adhere to voluntary norms. Therefore, further analysis and research is required to study behavioural drivers at the level of the Board as well as the impacts of regulatory processes across and within sectors. On the external front, sustained effort is required by stakeholders to bridge institutional capacity gaps, in order to streamline and harmonise regulatory processes and policies with ‘intra-company’ mechanisms.

So clearly, two sets of core issues need to be addressed. The first, dealing with internal corporate processes; and the second related to the interaction of these with the regulatory environment and societal expectations. This study is the first step in analysing some of the above and beginning an engagement with multiple stakeholders to discover next steps and pragmatic pathways that would allow accelerated adoption of best in class responsible corporate governance practices by all and certainly by the large corporations that have a compelling impact on society, environment and development.

I would like to thank the Indian Institute for Corporate Affairs (IICA) and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, for their continued support and guidance in the conceptualisation, and writing of this report. And, I would like to congratulate Vivan Sharan and Andrea Deisenrieder for their stellar work and very interesting research on one of the most debated themes of these times.

Samir Saran

Chairman and CEO, gTrade


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