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In self-interest, organisations should include the disadvantaged groups in their operational areas as stakeholders
Posted On Thursday, February 11, 2010 at 01:49:02 AM
It was on January 7, 2009 that Ramalinga Raju, the visionary leader of Satyam Computers — an iconic company in the glamorous information technology (IT) sector — made a five-page confession about the Rs 7,000-plus-crore fraud he had committed over a period of six years.
Ironically, this was the period when Satyam evolved into one of the iconic seven SWITCH (Satyam, Wipro, Infosys, TCS, Cognizant and HCL) companies of the Indian IT sector.
That shock sharply focused attention on the vital issue of corporate governance in industrial management and academic circles.
Regulatory agencies and the Government of India had to do serious rethinking on the concept of corporate governance and making it work in reality.
Corporate governance has been a major issue in global business especially after 1997 Southeast-Asian economic meltdown. Corporate governance is essentially to promote honesty in business operations and preserve the critically vital element of trust in those dealing with the enterprise. After all any good business is a win-win exercise.
As of today, the generally accepted concept of corporate governance is that an enterprise must observe transparency in its operations so that accountability can be fixed properly on those who take critical managerial decisions.
This accountability has been generally interpreted as protecting the interests of the investors (shareholders) and also other stakeholders.
The stakeholders would include suppliers, customers, employees as well as the society in which the enterprise functions. In recent times, this has also included — thanks to the growing awareness about global warming — the impact of the operations of the enterprise on the environment.
Scandals involving Enron and other Fortune 500 companies have been traced to the fact that the harsh discipline of quarterly results imposed by the stock market and the ever-increasing expectations of the investors have forced professional managers to adopt all means — including clever financial engineering and even illegal actions — to ensure that the market capitalisation of the enterprise is not adversely affected.
Nevertheless, there are still strict constructionists of the idea of free enterprise, like those following the ideas of Milton Friedman, who feel that anything that reduces the profitability of the enterprise is not acceptable.
Viewed from this perspective expenditure on corporate social responsibility would be considered as irrelevant and not desirable from an enterprise.
Post Satyam and post Copenhagen, there is a need to redefine the concept of corporate governance. Mr L V V Iyer, a corporate lawyer of Hyderabad, has come up with a more comprehensive as well as robust concept of corporate governance.
As per its inclusive approach to corporate governance, apart from the traditional stakeholders like the investors, suppliers, customers, employees and the people living in the vicinity of the enterprise, the poorer and weaker sections of society, where the enterprise operates, should matter to an organisation.
An inclusive concept is essentially robust because it has built into it the element of sustainability.
Any management decision taken in the light of this inclusive concept is likely to be in the interest of all concerned and is not likely to cause social tension which usually occurs when there is a wide difference between the quality of life of those directly connected with the enterprise and the rest of the population.
It used to be said of Keynes that he saved capitalism by destroying capitalism. A comprehensive,inclusive approach to corporate governance spells out a robust business philosophy based on the principle of free enterprise.
It goes beyond the traditional limitations of the concepts of capitalism and socialism. After all it articulates the ancient Indian prayer of Sarva jana sukhino bhavantu (let all people prosper).
A little reflection will show that this umbrella concept of inclusiveness also covers the welcome principle of enlightened self-interest.
This inclusive concept is a welcome solution to issues that crop up in the wake of land acquisition for major industrial and infrastructural projects. Corporate governance in the true sense, therefore, must adopt the inclusive principle.
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