, , , , , , , , , , ,

Before the first lecture on corporate governance, many of us associated corporate governance with charity. However, we soon learnt that this was not so. Understandably, since most of us were from emerging economies, the idea of corporate governance was extremely hazy. Professor Dennis Driscoll, one of the pioneers in teaching Corporate Social Responsibility (CSR) in Europe, and a visiting professor at Strathclyde Business School, introduced us to the broad contours of corporate governance by kick-starting the lecture on what corporate governance actually means and how it can increase shareholder value.

For a second I was bewildered! Increasing shareholder value?! How is that possible? I was of the opinion that shareholder value can be maximised only by increasing revenue and operating margin. However, I later realised that if one takes such a narrow view, then many social issues such as employment, environmental issues and ethical business values are side-lined. Adding to the business case for corporate governance, it is proved that a well governed company draws huge investment premiums and gets access to cheaper debt apart from outperforming its peers.

A classic case for bad governance would be the Enron debacle whose board of directors were not independent thinkers, incompetent, and unethical. One can watch the 2005 documentary film “Enron: The Smartest Guys in the Room” to find out what exactly went wrong. One would like to point out that though Enron was not the only governance failure or not the first one for that matter, it definitely did shake the confidence of shareholders and governments alike. Other case studies or examples of governance failures are the WorldCom accounting scandal and the Satyam fiasco familiar to most Indians.

In the above examples, it is interesting to note that the board of directors were not doing their job. Each member is expected to play the role of a “watch dog”, a “pilot”, and an “adviser”. Though it is very difficult to find the right person to fit into the shoes of the director, the nomination committee must appoint a person who fits into this role the closest. Also, while the shareholders have a vested interest in trying to influence the management thinking to suit their needs, one must not forget the stakeholders (both primary and secondary) who can virtually destroy the reputation of a company within no time. As many of us know, Wal-Mart, the American super market giant, was denied entry into many suburbs and neighbourhoods owing to its bad CSR practices.

Finally, the module wraps up by looking at the director’s remuneration (which is almost always exponentially high for the work they put in!), the lack of corporate governance in most family-run firms and the growing need for superior and transparent governance code in emerging economies. ”