Good Governance

In the aftermath of the recent global financial crisis, there has been a renewed focus on strengthening corporate governance; a number of committees and panels have been set up to review governance norms & practices.

Sir David Walker's review of boardroom standards and practice in Britain's banks has identified the key problems - inadequate scrutiny of bank bosses by their boards and by investors, a lax approach to risk and a pay & bonus system that encouraged short-termism. It has made a number of recommendations for changes to governance code on pay, risk, boardroom structure and director responsibilities

The U.S. Congress is pushing to reform how companies are governed and executives are compensated as part of a broader package to overhaul the country's financial regulation; they are considering giving public company shareholders a nonbinding annual vote on executive pay.

In India there is a call to put a cap on the number of directorships an independent director can hold.

An interesting article that I read a couple of days ago by Eric Jackson on best governed companies in America concludes that well governed companies stand apart from others in Board equity ownership, independence & competence and real time spent on matters of governance. Berkshire Hathaway, Johnson & Johnson and Amazon.com have been identified as companies with the best in class corporate governance in America. .

The question is can Board independence, shareholders nonbinding annual vote on executive pay, compensation restrictions and other similar codes guarantee good governance? It will I am sure make for better governance but good governance really goes beyond laws, norms and board structures & practices to values and ethics espoused by companies in every day interactions and transactions at work. The more we depend on norms and regulations to govern good conduct the less and less people take real responsibility and ownership for acting with honor. The focus therefore has to be more on defining & living core values that are espoused
and in restoring first principles of integrity, respect and responsibility in interactions and in use of resources.

For scores of Indians, Tata’s epitomize Trust. In their work and actions, their core purpose remains “to improve the quality of life of the communities we serve.” That is reflected in the work they do and in the businesses they run.

Infosys’ commitment to Transparency sets them apart - and this what makes customers, employees, shareholders, social beneficiaries and vendor partners keep faith in them.

Interestingly, the two companies ( Berkshire Hathaway & J&J) referred by Eric Johnson in his article are known for their focus on values and ethics and the way in which these values are embedded in the very fabric of the organisation.

Johnson & Johnson is famous for its Credo which was crafted way back in 1943 by a former Chairman & member of the Company’s founding family. The Credo defines the company’s beliefs and serves as a guiding principle in the way work is done; it defines how customers, vendors, suppliers, employees, community and shareholders will be treated. It recognizes that the well being of people being served comes first and it is only through living its guiding principles can business make profits and shareholder realize a fair return. The credo sets the baseline for all interactions and leaves no room for ambiguity. “We believe our first responsibility isto the doctors, nurses, patients, to mothers , fathers and all others who use our products & services” “ we must constantly strive to reduce costs so prices are maintained at reasonable levels. Customer orders must be serviced promptly and accurately. Our suppliers and distributors must have opportunity to make fair profit” “ we must maintain in good order the property we are priveleged to use”

The Code of Business and Ethics in Berkshire Hathaway defines expectations of behavior from all directors, officers and employees. The focus is on upholding highest levels of business ethics and personal integrity in all types of transactions and interactions. When in doubt, Warren Buffett’s rule of thumb applies: “…I want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper – to be read by their spouses, children and friends – with the reporting done by an informed and critical reporter.”

Good & responsible governance can only be ensured by a self imposed code of honour and commitment to leaving a responsible legacy. For that to happen organization should consciously look at embedding a DNA that defines the spiritual, physical, social and intellectual dimensions of its purpose and existence & ensure that DNA is reflected in every business interaction and transaction.