Case for Integrated Corporate Governance

There has been a steady shift in stakeholders’ self-awareness across the world in recent years. Strategic investors, shareholders, employees and even the vendors are now more cautious about how managements are governing businesses in the face of the economic slowdown following the outbreak of the coronavirus pandemic. Corporations have been facing a liquidity crunch in the aftermath of the Covid-induced restrictions, which may eventually turn into a solvency crisis in many cases. This is compelling stakeholders to mount increasing pressure on the management to report financials in the most transparent and ethical manner. 

Companies, which commanded goodwill and appeared to be the best managed, have collapsed under bad governance. Enron Corp and Satyam Computer were watersheds in global corporate history, bringing about a big realisation as to how vulnerable businesses could be at the hands of an unscrupulous board. 

The Enron scandal was instrumental in the legislation of the Sarbanes–Oxley Act of 2002 in the United States but no such laws were enacted in India. Lack of a single effective legislation is an impediment in the way of good corporate governance in the country. Multiplicity of authorities and guidelines often that regulate corporate governance in India is another pertinent issue. 

International business community is veering towards integrated corporate governance to deal with the challenges that it is facing currently. “Upgrading corporate governance in line with the ongoing technological, environmental, geopolitical and socio‑economic transformation of today’s business operating context,” says a report jointly written by Richard Samans, Managing Director, World Economic Forum, and Jane Nelson, Director, Harvard Kennedy School of Government. 

Transparency, accountability, and security are emerging as the major concerns of experts dealing with corporate governance today. Integrated corporate governance today encompases notions of environmental, social, governance and data stewardship (ESG&D) aspects. Another most important thing is that integrated corporate governance must include disclosure in the most transparent way. 

“The coronavirus pandemic crisis is accelerating a shift toward a more integrated approach to corporate governance that has been gathering force for some time. The pandemic has put people’s lives, livelihoods and learning at the centre of the public policy and business response in almost every country and industry sector,” says the World Economic Forum report. 

Sustainability is by far one of the most crucial aspects of integrated corporate governance. It brings monitoring of the sustainability mechanism to the boardroom. The United Nations Environment Programme (UNEP) has played a major role in bringing sustainability to the core attention of the top management of corporations. According to UNEP, “integrated governance is the system by which companies are directed and controlled, in which sustainability issues are integrated in a way that ensures value creation for the company and beneficial results for all stakeholders in the long term.” 

This framework model requires the management of all types of capital in an integrated way while incorporating a sustainable strategy. Indian companies are now more and more realizing the importance of integrated corporate governance, and thought leadership from organizations such as the World Economic Forum and UNEP are revolutionizing the way corporate governance was carried out.