Beyond the headlines, what truly keeps a company on a path to long-term success?.
According to the Institute of Company Secretaries of India (ICSI), Corporate Governance is defined as the application of best management practices, compliance with laws in both letter and spirit, and adherence to ethical standards to ensure effective management, wealth distribution, and social responsibility for the sustainable development of all stakeholders.
A Company, as incorporated under the provisions of laws, are subjected to an array of compliances and disclosures throughout the lifetime of the Company, at regular intervals – be it monthly, quarterly, bi-monthly, yearly, or at the occurrence of an event that triggers the compliances and disclosures as prescribed under the relevant acts.
So, what is the purpose of these mandatory disclosures and compliances? Well, they intend to ensure that the Company is working towards the interests of the shareholders, as well as promote accountability, transparency, fairness and responsibility. These are known as the 4 pillars of Corporate Governance.
- Accountability: It is essential to hold a Corporate accountable for its actions, as while it is owned by the shareholders and it works towards the interests of the public, it is run by a team of directors. As three different groups of people are involved, it is essential to instil a sense of accountability in the Corporate Person with the aid of mandatory and regular disclosures to ensure they are still working towards the planned track and towards the interests of the stakeholders.
- Transparency: The need for transparency mirrors the need for accountability as the interests of stakeholders are directly proportional to the workings of the Company; hence, transparent behaviour provides security to the involved personnel, such as Shareholders, Public Authorities, Creditors, General Public, et cetera. The prescribed compliances, disclosures and mandatory reportings ensure that the Corporate person is being transparent about their actions and functionings.
- Fairness: Fairness is yet another pillar that upholds the structure of Corporate Governance. It intends to ensure equitable behaviour for all the stakeholders in terms of disclosures, reporting, treatment, rights, et cetera. Stakeholders of a company include Shareholders, Directors, Customers, Creditors, Employees and the wider community.
- Responsibility: A Corporate person is responsible towards the stakeholders, and it is its duty to make sure that it is working in the interest of the stakeholders ethically while following the letter and spirit of the law. Hence, a responsible company is bound with the duty to act legally and ethically right as well as protect the interests of the affected personnel and the society within which the Company is based.
While the above-mentioned information highlights the needs of compliance and the pillars that uphold the entire structure of Corporate Governance, it is still essential to study the benefits that arise out of a good Corporate Governance structure and why a Corporate should be compliant and follow the practices of good Corporate Governance. The benefits of following good Corporate Governance Practices are as follows:
- Trust Building: A Company which has a reputation of being Compliant and follows good Corporate Governance practices gains the trust of the Public, which aids in attracting investors and customers and henceforth increases the goodwill of the Company in the long run.
- Risk Management: A Compliant and Ethical company manages to evade all sorts of legal risks as well as ethical crises, which ensures smooth functioning of the Company.
- Long-term Gain: While working on the wrong side of the law or being immoral might provide fast monetary gains, it won’t last and is only temporary in nature. On the other hand, a Compliant Company is awarded the benefits of goodwill, Growth, Stability which last for the long term, unlike a non-compliant company with an ever-approaching expiry date.
- Wealth Management: A Compliant Company with growth and goodwill results in an increase of wealth of the shareholders as the share price of a Company gets affected in the long run and aligns more with the ultimate goal of all the shareholders.
- Effective Management: Regular and in-depth reporting by a Company and mandatory disclosures ensure that the Management of the Company, which is behind all the actions and decisions taken by the Company are effective as well as efficient in nature, which is beneficial for the Company as well as the Stakeholders involved.
To conclude, Corporate Governance is the platform that upholds the interests of the Shareholders, Employees, Wider Public Community, Customers, Directors, Creditors, Public Authorities and more with the aid of the 4 Pillars – Accountability, Responsibility, Fairness, Transparency. Good Corporate Governance practices by a Company result in trust building, wealth management, risk management and long-term gain by the Compliant Company.
The prescribed compliances, mandatory disclosures and regular reporting play an essential role in upholding the core structure of Corporate Governance and help the Corporate person to adhere to the letter and spirit of the law ethically.
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