Good Corporate Governance Is Also Great Brand Building

Niranjan Gidwani Mar 04, 2023

In recent times, Corporate Governance is one topic that has received much attention throughout this region as well as the rest of the world.

Corporate Governance is all about maximising shareholder value legally, ethically, and on a sustainable basis, while ensuring fairness to every stakeholder – the company’s investors, customers, employees, vendors, the government of the land and society at large.

Longevity is the best index of the success of an organisation, and good governance is one of the most critical conditions for ensuring longevity and growth. “Culture and Governance are what determines how people behave when they are not being watched.”

Against the economic backdrop of a looming recession, soaring inflation, higher interest rates, the internal pressures on management teams to hit financial targets will continue to grow. Rising interest rates, supply chain costs and geopolitical situations are going to put tremendous stress on companies across the region, especially those operating with low margins.

If we were to look at some of the high-profile names of companies that have recently collapsed in our region, or even across the world, we come to this firm conclusion that a weak culture of corporate governance is indeed a major factor leading to possible financial distress.

From the risk landscape, it is getting clearer that now more than ever, companies are prone to financial distress, thereby heightening the risk of regulatory or legal breaches. Imagine the loss of reputation associated with undue attention from regulators who continue to demand tighter regulation from companies.

This tightening of regulations is progressively evident in many countries. New corporate governance rules have started getting implemented to bring more nations in line with international best practices, including promoting accountability and transparency.

More and more good governments are reaffirming a commitment to balance their ambitions with a drive to promote a strong corporate culture and embrace properly managed businesses.

If we were to drill down a bit more, we realise that family firms are the backbone of any global economy. They account for a significant segment of the gross domestic product and employ almost 70–80 per cent of the workforce in the private sector. Therefore, family firms’ contribution and existence in the future are extremely crucial and valuable to any economy. Family firms therefore would need assistance and hand-holding to invest more time, money and energy in strengthening the area of governance.

Having a formal family council is essential to promote family and business welfare, as well as to organise the relationship between family members and the business. Even during external shocks like the current phase, a family council creates the formality necessary to establish well-structured decisions driven by family values and vision.

One of the most basic corporate governance mechanisms is to share the boardroom with a professional, well-diversified, ethnically balanced, non-family board of directors. Having a well-structured board of directors not only ensures better accountability but also limits the risk of managerial opportunism and prevents conflict of interest which senior management may have with the businesses they run.

A report released shows that only 22 per cent of family firms have external members on their boards. Unfortunately, not having independent members as a part of the board of directors implies that family members and extended relatives will continue to dominate board-table discussions.

This region and the world at large must institute more and better awards for good, ethical corporate behavior and promote a corporate governance ranking system to brand organisations in some order of merit in this area.

Senior managers and leaders must also be ranked not only on the basis of their performance and leadership capabilities but on the basis of the standards of ethics and integrity they set.

Although the economic outlook may be challenging, companies operating in this region should not shift their focus away from corporate governance upgrades. This is especially true in recessionary times when companies are under financial pressure to cut costs.

It can be risky to cut controls during such a time, as a sub-standard control environment provides a greater risk of financial misstatements, and recent corporate failures have shown where that can lead. Now is the best time to be future-ready.

In the ultimate analysis, we are all temporary custodians of the wealth we generate, be it financial, intellectual, or emotional. We have all, at some time, eaten the fruit from trees we did not plant. In the fullness of time, when it is our turn to give, we must in turn plant trees that we may never eat the fruit of. This should be our sacred responsibility. And good, honest governance only helps in better fulfilling this responsibility.

'Intentional integrity’ is about recognising that integrity is really driving our business, protecting our brand and letting everyone know that it’s important to openly talk about what it means to do the right thing.

After all, isn’t this what all brand-building books and guidelines talk about? Just with a different spin.

Imagine spending millions of dollars to create a great brand image. Only to realise that the foundation structure of good governance did not have the right quality amount of cement.