Business

Corporate Governance: The Critical Need for Evolution in Modern Business Practices

By Niranjan Gidwani | CONSULTANT DIRECTOR | BOARD MEMBER SSGMUAE | MEMBER UAE SUPERBRANDS COUNCIL | HBR ADVISORY COUNCIL | CHARTER MEMBER TIE DUBAI

Corporate governance, the art of directing and controlling organizations while balancing stakeholder needs, faces significant challenges in today’s dynamic business landscape. In an era marked by technological advancements and frequent disruptions, the traditional static approach to board composition and practices is inadequate. This article explores the urgent need for corporate governance boards to evolve, embracing digital strategies and ethical standards to navigate complexities and ensure sustainability.

Corporate governance is essentially the art of directing and controlling an organization while balancing the needs of all stakeholders, including the shareholders. This requires that conflicts of interest among various stakeholders be frequently and regularly resolved and balanced out. 

Genuinely good corporate governance means following disclosures, ensuring transparency in processes such that governments, regulators, shareholders and society are provided with accurate and timely information about the organization’s financial, operational, sustainability and other aspects. 

In today’s competitive landscape, no industry is immune, nor is any company spared, from the frequent and severe forces of disruption. When board composition and practices remain largely static and fail to reflect the fast-moving digital era in which we live, organizations are set up for difficult times. None of us needs to look too far to see the innumerable examples of organizational collapse, fraud, and lack of direction.

According to American Banker, in 2023 alone, global fraud cost was usd 500 billion, and illicit money transactions topped usd 3 trillion. The scale of corporate and financial crimes is growing in geometric progression around the world.

The biggest irony is that almost everyone talks about change as being the only constant in life. Boards have the responsibility of evaluating management on their ability to innovate and to leverage emerging technology for competitive advantage. Yet, how many corporate governance boards are we aware of that apply any of these standards to themselves or upskill their own technological development. We could actually count such organizations and boards on our fingertips. How then can we, even in our wildest of dreams, expect boards to successfully drive sustainability initiatives.

From now onwards, navigating the choppy waters that transformation entails is going to be particularly challenging for companies who wish to flourish for another couple of decades. The uncertain geo-political scenario, war risks, supply chain issues, distribution and delivery models mutating, online fraud, data theft, new tax regimes, the onset of AI ……..and the sustained pressure of shareholders who want their profit expectations to be met. 

Therefore, for good management teams, this only reinforces the need for their boards to be fully informed, aligned, and confident about the underlying causes of short-term turbulence when pursuing a longer-term strategy which needs to be transformational.

The pursuit of profits and the oft repeated saying “The consumer is king” co-exist as an interesting tug-of-war. Satisfying all requirements of a consumer can put pressure on profits, and if the focus is only on profits, then the consumer may shift to competition. The market has the ability to ultimately correct all such contradictions. 

With several decades of the onset of globalization, and with the ever increasing influence of corporations, there are more than adequate instances to indicate to us that unethical, illegal and at times criminal behavior is on the rise. It is also becoming obvious that the benefits of such behavior clearly seem to outweigh the risks. Such behavior is having a huge impact on the state of industries, start-ups, and even nations. The irony seems to be that almost all organizations expect their teams and people to be ethical, except when making money for the organizations.

Every single day, media is full of stories of companies hit by reputational issues that arise from unpredictable events. The emergence of social media is an influencer advantage as well as a serious migraine for boards and stakeholders especially when it comes to managing risk in the current digital age. Even the best organization could be only one online message or one viral video away from a significant hit to their reputation and business. 
Take the case of one of the most popular ride-sharing companies. This company revolutionized the way transportation is organized, and then got into hot water because the board members, including the founder were accused of gross ethical violations as well as serious charges of harassment and the improper way in which the company dealt with violations involving ethical and gender-based discrimination. Examples such as Volkswagen highlight the consequences of profit-driven decision-making leading to severe violations. Enron, Satyam – where accounts were manipulated, profits were overstated, top management was engaged in unethical behavior and debts were concealed.
Corporate and Governance boards need to seriously and urgently step up and be active participants in forward-thinking discussions. They need to enforce a balance that ensures continuity while also fostering a risk-taking culture. We keep using the word “disruptive”. Corporate governance also needs to be viewed disruptively. It must change with the times to ensure that it does not fall into the trap of short-termism.
Good organizations must shy away from the belief that big money can be spent on media, and that media can be manipulated or influenced to protect wrongdoings or brush them under the carpet. While this approach may work for some time, it is unsustainable and one can see it leading reputed organizations and startups to their downfall.
At the board and corporate governance level, disruptive adaptability to change might be the “miracle app” that will set the right tone for good, ethical governance in the digital age. 
The article was shared with Prittle Prattle News as an authored article.
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