Principles of Corporate Governance: An Overview
Principles of Corporate governance is a sort of an umbrella term. It refers to all the processes and structures that keep the resources of an organization, including human resources, on track towards the optimum methods of achieving its documented long-term goals.
The Changing Landscape of Corporate Governance
Corporate governance today is in a fluid state, ever since adaptability and readiness to change have become the mantras by which businesses can survive and thrive. The coronavirus pandemic was a catalyst in a change that was already on the cards at the turn of the decade. The focus is now on business outcomes and delivery of projects as opposed to vanity metrics such as fancy office real estate in city centres and teeming offices buzzing with employees. Similarly, the earnings and profits of an organization are no longer simply up for sharing as dividends among the shareholders. Fortunes veer wildly for business operations and job losses become the apparent, if unwelcome, solution to several revenue models. With these basic thematic changes, corporate governance changes from the frontline worker all the way up to the executive level.
Shareholder-centric models of businesses focus on revenue creation and drive business interests. However, these ideals are in for a revamp. The coronavirus pandemic has pointed out more than ever in recent times that a contingency fund to pay creditors and aid in business continuity is crucial to have. Disbursing profits back to shareholders conflicts with the scores of jobs that had to be turned adrift as part of coronavirus-related shifts in the economy. It is common for shareholders to take cuts in dividend models under special circumstances, but it is not the norm. A fundamental re-evaluation of corporate governance has been necessitated by the pandemic.
Government Policies and Their Implications
The signals from the Indian government in the matter of corporate governance have been a mixed bag. For one, the Dividend Distribution Tax was abolished by Finance Minister Nirmala Sitharaman, in her budget 2020-21. On the other hand, the dividend payout is now taxable at the recipient’s end, making it less attractive. This means the company that pays the dividend is not liable for taxation. But those who receive dividend income find it dearer.
Corporate Social Responsibility and Strategic Communication
The flip side of this issue of making gains on company performance is maintaining corporate social responsibility in the face of uncertainty. Whichever corporate governance decisions are made with regard to shareholder welfare and corporate purpose, they have to be communicated effectively from time to time to the public. Crunch time has caused the custodians of corporate governance to ponder deeply over strategic planning. Upholding moral integrity and transparency, these business leaders reassess their long-term priorities. Corporate governance models are going back to the basics.
People-Centric Models in Corporate Governance
One of the four factors of principal importance of corporate governance is ‘people’. Today’s shareholders and investors reckon that ‘people’ is an inclusive term for employees, suppliers, customers, and communities that support business rigour in any given fashion. Indian corporate governance is overhauling to align itself to the cause of safeguarding its people and social responsibility. As such, no single group will be the most important one. Corporate governance will keep a close eye on which groups and communities are afforded primacy in the interest of business continuity – survival and growth.
In a sense, this change is not unlike the people-centred changes in staffing decisions. Distributed teams and teleworkers are more welcome than ever. They jump in from various time zones and locations to take the edge of workforce planning pressures in this new model of the world of work. Business leaders are quick to realize these merits and throw in the weight of their buy-in for business transformation that is people-centric as opposed to the shareholder-centric model. In the future of work as in the future of business, pondering strategic plans and adapting to the changes will continue to be the way forward.
References:
- Covid-19 Is Rewriting the Rules of Corporate Governance | Harvard Business Review | Lynn S. Paine | October 06, 2020
- Budget 2020: Dividend income gets costlier; DDT removal good for companies, bad for investors | Financial Express | Kshitij Bhargava | February 1, 2020
- The end of shareholder primacy in Indian corporate governance? Says who?! | Taylor & Francis Online | Devarshi Mukhopadhyay & Rudresh Mandal
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