fiinovation The Amalgamation of Corporate Governance, Sustainability & Make in India

"The real mechanism for corporate governance is the active involvement of the owners."

- Louis V. Gerstner, Jr.

The fundamental perceptive of

corporate governance can be

summed up by saying that 'the

man who can keep a secret may

be wise, but he is not half as wise

as the man with no secrets to

keep.' In today's world,

corporate governance and

sustainability are core aspects of

business operations. The

organisations' that overlook

strategizing on these

parameters, might have to bear

the consequences, of not

balancing the interests of its

stakeholders. The framework of rules and practices which the board decides must ensure

accountability, fairness and transparency as part of a corporation's relationship with all

stakeholders. Gone are the days, when the global corporations can blue wash or green wash

but now corporations are held responsible for social and environmental damages, and

therefore, the stakeholders demand sustainable reports based on the triple bottom line

approach.

The global economy is in turmoil and its still trying to recover from the 2008 global financial

crisis, the worst since the Great Depression of the 1930s. In the days to come, the

corporations would be expected to become more transparent, accountable and sustainable to

survive in the global volatile markets. This calls for corporations to become more vigilant and

have an effective mechanism at place to overcome the abuse of the triple bottom line

approach. It is believed and observed that the corporations which do not abide by the United

Nations Global Compact (UNGC) norms face consequences such as damaged shareholder

value, tarnished reputation with investors, both global and domestic, and lacks integrity in

fiinovation global financial market.

India is one of the fastest growing economies and is a huge market for not only national

corporations but also for multinational's as well. It is predicted that it will continue to have a

dream run for a decade or so. Despite other economies virtually going through recession,

India remains positive from the global investor perspective. Corporate governance and

sustainability principles in India are slowly being established by corporations in the last two

decades. It may be understood that the businesses environment in India is significantly

different to that of the western countries. The corporate governance models are generally

drawn from the Anglo-Saxon model where the corporations' rely heavily on the capital

market and the investors express their favours or disapproval for actions of management. It

is also to be understood that the investor base in Indian corporations are largely company

founders, their respective family members or the state government. This is in striking

contrast to the western countries where the concentration is less to a certain group of people.

Therefore, considering that aspect in the forefront, one may question, "would it be right and

wise to refer to the principles of corporate governance and sustainability on the models

developed for and in a market segment significantly different than that of India?

However, in order to make India the best in corporate governance practices, the Ministry of

Corporate Affairs, Government of India, set up on 1st October, 2003, the National

Foundation for Corporate Governance (NFCG) in collaboration with Confederation of Indian

Industry (CII), Institute of Company Secretaries of India (ICSI) and Institute of Chartered

Accountants of India (ICAI) have worked around the framework which is compatible to the

Indian conditions of industrial development and governance . The NFCG has played a major

role as a catalyst to foster a culture for promoting good governance and sustainable

practices among corporations in India.

fiinovation With 1.27 billion population, India need to grow rapidly for the next two decades to be able

to meet the demands of its citizens. Government and corporations together need to create

more job opportunities to ensure inclusive sustainable development of the country. Keeping

in mind the huge demand and potential of the nation, the government has been ensuring

that India becomes a business friendly destination, especially attracting investors from

across the global to be a part of India's growth story. Looking at its vision of overall

development initiatives started by India, "Make in India" is a campaign to attract foreign

direct investments (FDI) to various sectors urging them to manufacture in India, instead of

China. Other initiatives that the government working to enhance capacity of the youth in

terms of employment and entrepreneurship are Skill India, Digital India, Start up India,

Stand Up India, etc. With these initiatives, India aims to become the global start-up hub,

overcoming Israel and challenging China by becoming the global factory. While doing so, it

will be upto the corporations, apart from the government and individuals, to ensure that

India develops sustainably without environmental degradation, especially addressing issues

of global warming. The corporations will have to keep in mind the social aspects such as

human rights, labour laws ,etc along with the interests of the stakeholders.

Last year, the government of India launched 'Make in India' campaign to provide a major

boost to the manufacturing sector at a rate of 14-15 percent for the Indian GDP to grow at 8-

9 percent. The manufacturing leaders need to ensure that they review their corporate

governance by wider consultations with stakeholders. The board members will have decide

on the sustainability strategies and invest more on green initiatives as per the triple bottom

line approach. Sustainability reporting is must as it gives the stakeholders how the

corporation fares among the rest and also understand the loopholes which need to be fixed.

Many corporations avoid the triple bottom line approach and green initiatives because of the

cost factor involved, however, they need to realise the long term benefits of the initiatives. As

part of the government, it need to ensure financial support for green initiatives, especially for

small and medium enterprises (SMEs).

At present, only 10 percent of the manufacturing sector is essentially on a sustainability

framework as businesses are still deciding if they want to adopt sustainable measures or not.

Not only sustainability, corporate governance of these manufacturing firms are also crucial

to improve the present situation. In the west, pressure from either consumers or the

government compels corporation to become sustainable in their approach. In India, the low

participation of corporations in corporate governance, corporate social responsibility (CSR)

and sustainability initiatives suggests that there is a lack of awareness and willingness.

Majority of the corporations are figuring out the alignment between their business objectives

and the CSR goals, corporate governance framework and sustainability initiatives by

understanding the nitty-gritties of the concepts and its applicability. The gap in the

realisation of the need to have sustainable development along with CSR by the corporations,

made the government authorities enforce a law. As the benefits arising out of such

investment is long term, corporations are yet to figure out the return on investment in these

green initiatives.

Currently, India has only been limited to developing industrial parks, special economic zones

and industrial estates largely due to boom in the IT sector The recent push in developing

industrial corridors is likely to boost the manufacturing sector along with 'Make in India'

campaign that opens the sector for FDI. Excluding the active systems such as Clean

Development Mechanism, PAT scheme and SEBI guidelines that have been propelling the

fiinovation corporations to incorporate sustainable measures, the government must come up with

different laws or stricter regulations to ensure good corporate governance and sustainable

development.

India must also understand that manufacturing is an energy-driven sector. In order to be

energy efficient, there needs to be a push for application of renewable energy with direct

linkage to the manufacturing sector. On an average, about 75 percent of global economic

production takes place in cities and India is no different. The urban production will account

for nearly 70 percent of the country's GDP by 2030. Therefore, India needs to ensure that its

cities become sustainable by backing sustainable manufacturing and good governance.

Regarded as the engines of growth, it is crucial to bring SMEs within the ambit of

sustainable development plan and corporate governance. As SMEs have restrictive budgets,

it can prove to be difficult for them to go green while ensuring their business prospers. This

is an area where government intervention is required to ensure green funds are available to

them. The SME sector has been looking at sustainability differently and are not much

inclined towards environmental issues, resource conservation or energy efficiency, rather

their focus is majorly on pollution control board regulations, labour laws, minimum wages

etc. In the coming years, the SMEs need to understand their role in ensuring sustainability,

even though their carbon footprints are lesser. They need to adopt policies of water and

energy conservation measures to reduce environmental impacts.

As India presents its case at the Conference of Parties (COP 21), Paris, later in the year,

India's manufacturing sector will be under enormous pressure due to global competition,

rapid technological advances, shorter product life-cycles, environmental and social damages.

This is where corporate governance and sustainability will play a huge role to keep the

interests of the stakeholders alive. To implement sustainable manufacturing, continuous

research must be a priority for the manufacturing sector. Corporate governance, CSR and

sustainability measures can enhance a corporation's market credibility and lead to increased

productivity, improved quality and increased market outreach. Through business

sustainability and product innovation, the manufacturing sector will not only increase its

share of GDP, but also grow without hampering the environment.

Economists around the globe believe that India is on its way to becoming $4-5 trillion

economy in the next 7-10 years. The current Prime Minister showed a vision of $20 trillion

economy, whereas the late former President Dr. APJ Abdul Kalam, dreamt of India as an

developed nation which is similar to the dreams of more than a billion people. Let us all work

together, government, corporations and individuals, establishing corporate governance and

sustainability frameworks to make India an sustainable nation, creating benchmarks for

others to follow.

Media and Communications, Fiinovation