Madhav Mehra on 9/11/2001

"Corporate governance must go beyond shareholders"

CAN there be a convergence of corporate and public governance? This question reflects the core of a discussion that is being masterminded by Dr. Madhav Mehra, President of World Council for Corporate Governance, on a national scale.

Kolkata, on Friday, played host to a seminar that discussed, as Dr Mehra put it, "the power of collaborative governance", from where a number of gems rolled out. And the city's management cognoscenti lapped them up.

Western models of corporate governance, it was pointed out, were mostly based on maximization of shareholder value - a theory that was not entirely applicable to the world. Indeed, employees, whose knowledge accounted for 70 per cent of corporate assets, must be made part of any governance system, it was felt.

Governance, in other words, must not focus merely on shareholders. According to the Centre for Corporate Governance, it must also consider customers and employees who commit their lives for the corporation.

"Traditionally speaking, the constitution of a company's board of directors is confined to its shareholders. The aim here is to maximise their value," said Dr. Mehra. In the current knowledge economy, however, such a policy could lead to a conflict of interest between stakeholders and employees.

A modern corporation, therefore, must create wealth for all stakeholders, including employees, suppliers and customers.

Despite all efforts at alleviating poverty, a large part of the world population was still below the poverty line, while deprivation and poverty were set to become the greatest threat to business and industry.

Therefore, business must involve all sections of stakeholders in working out the right strategies for collaborative governance.

The events that took place on September 11 in the US had changed the world to the extent that people wanted a "complete lifting of the veil of secrecy" in their financial system.

As the Centre put it, there was a lesson in this for corporate in the context of globalization, the latter must help bridge the gap between winners and losers.

Dr. Mehra's initiative found endorsement from Lord Swraj Paul, Chairman of the UK-based Caparo group of companies. In Lord Paul's words, there was need for transparency and corporate governance in all aspects of life.

Centre for Corporate Governance releases guidelines for directors

Social & environmental reporting shall become part of the company disclosures as per the guidelines on corporate governance issued by the Centre for Corporate Governance. The Guidelines were released yesterday by Lord Swraj Paul at a Seminar on the Power of Collaborative Governance conducted by Dr. Madhav Mehra, President, World Council for Corporate Governance at Hotel Maurya Sheraton, New Delhi.

Lord Swraj Paul stated, "the corporation has a key role to play in providing employment in public and private sectors, goods and infrastructure. The efficiency and accountability of the corporation is now a matter of both private and public interest and governance, therefore, comes at the top of the international agenda."

Addressing the Chairmen, CEOs and Directors from Navaratna PSU's and top Indian companies, Dr. Mehra said "no government in the developing world has the economic resource to overcome the poverty and inequality inherited by them. If business, as a corporate entity, has to survive in this age of rising public aspirations, it is of utmost importance that it collaborates with state, the civil society to engage in sustainable solutions for our economic, social, environmental problems."

Dr. Mehra recommended that companies adopt a triple bottom line approach, which look after all 3 aspects - profits, people and planet. He added, that "globalization to be effective, has to work for everyone." He asked , "in the fiercely competitive market-place when corporates are scouting for the top 1% highest scorers on competitiveness and innovativeness as managers or employees, what will happen to the 99% of the losers?" He said, that "the widening gap between winners and losers was the biggest threat to the security and survival of business in a world where non state actors wield awesome power. Corporations, therefore, had to take a centre-stage role in building proactive strategies in taking social measures that bridge this gap between winners and losers."

"Good governance must think of long-term benefit"

GOOD governance should pre-suppose a long-term and sustained benefit to the society at large through collaborative efforts, rather than focusing on short-term gains of enhanced value to the shareholders and efficient management of entities.

Stressing this theme, speakers at a seminar held on Thursday said that business, stakeholders and civil society should work towards the triple bottom-line of profits distributed equitably among people, who in turn should contribute to protecting the environment. Only by this reckoning will corporate governance have some value.

This seminar was inaugurated by the Karnataka Governor Ms Ramadevi, and addressed by the Chief Justice of Supreme Court, Mr. M.N. Venkatachaliah.

Others who spoke include Mr K. Jairaj, Vice-Chairman and Managing Director, Karnataka State Road, Transport Corporation. Dr. M.R. Rao, Director IIM, Bangalore, Dr. Madhav Mehra, President of World Council for Corporate Governance, and Mr. V.V.K. Mani, Regional Manager, The Hindu.

Mr. Venkatachaliah said that the receding role of State as a welfare instrument was an issue that needed to be addressed to relocate the responsibility of social obligations.

"Globalization has not brought any marked change in the redistribution of wealth as can be seen from the fact the income value of the top 20 percent kept increasing even now.

"CRC will meet deadline deadline on submission of report"

BANGALORE, JAN 3, The Constitution Review Commission (CRC) will meet the February 28 deadline for submitting its report, the chairman of the commission, Mr. M.N. Venkatachalaiah, has said.

The report would propose the creation of a "non justifiable mechanism" by which civil society would annually assess the performance of the Government, he told persuasions on the sidelines of a seminar "Collaborative governance", here on Thursday.

A proposal had also been made for setting up a commission on inter-state commerce, he said. Feedback from various financial institutions and business bodies would be generated for the purpose, he said.

Hinting that the report would be free of "controversial issues", Mr. Justice Venkatachalaiah said the "commission was not formed to rewrite" the Constitution but to help make governance efficient.

"Where shall we relocate social obligations in the context of globalization?" he asked in his talk at the seminar, organized by the Institute of Directors and the Centre for Corporate Governance, New Delhi.

The transition from a welfare state to a market economy, with the Government divesting itself of several functions, the role of the corporate would be keenly watched, he said.

The President of the World Council for Corporate Governance, Madhav Mehra, said the "mismatch between shareholder expectations and customer aspirations" was at the root of "wealth creation." The knowledge economy had led to a public that was better informed on the behavior of companies and there were several examples of companies violating "social licence," incurring public ire, he said.

Successful companies would be those that recognized their responsibilities to society, and displayed pro-activeness in compliance, he said.

The Director, Indian Institute of Management, Rammohan Rao, said companies would have to take a long-term view and not be obsessed with quarterly results.

The Chairman of the Constitution Review Commission, M.N. Venkatachaliah (centre) with the Governor, V.S. Rama Devi, and the President of the World Council for Corporate Governance, Madhav Mehra, at a seminar on Collaborative

Shareholders are not the only owners who matter

Addressing a group of corporate executives in the UK Dr Mehra spelt out the WCFCG philosophy. He said "World Council for Corporate Governance adds an  entirely new dimension to the issue of corporate governance in the knowledge economy. The role of corporate  governance has vastly changed with the emergence of due to the knowledge capital. We think that corporate governance is way beyond disclosures and compliance and calls for a highly innovative and radical framework. We think that shareholders are not the only owners who matter. Employees have an equity well in excess of 70% of the companies assets. Corporations of 21^st Century would need to develop strategies to collaborate with employees, customers and suppliers to create value for all stakeholders. With 350 million people still living below the poverty line, we look at corporate governance as an instrument of not only economic transformation but also a means of social transformation." 

Engines of National Transformation  

by Harichandan A. A. 

The Hindu, Bangalore, Friday, August 17, 2001

Globally, corporate organisations are being asked to be more accountable, practicise self-policing and make financial transactions transparent and constitutional. They are expected to be partners in the economic and social transformation of nations. 

Corporate directors then, must embrace radical thinking, aggressive competition and good corporate governance, says Dr Madhav Mehra, Chairman, World Quality Council.

He was speaking to corporate leaders here recently about his favourite idea - the need to revolutionise the role of corporate directors to make Indian corporate "engines of national transformation rather than mere economic entities."

"A corporate director has civic responsibility. The people who accept this responsibility, do it conscientiously and well, deserve our respect as they are serving a nation. But those who as directors are passive and view their role as mere advisers, are pliable and pleasant but do not insist on a real monitor's role, do small service to anyone and deserve little respect"-is what Chancellor William T. Allen, Corporation Jurist from US, says. 

The views are as valid for corporate directors in India, says Dr Mehra. He admits he does not have all the answers. His persuasive skill and the goodwill he has earned through diplomatic perseverance are his strengths. 

The right thing
Corporations are now being asked to do more than maintain bottomline profit. Indeed, with "public-private partnership" being the latest mantra of cash-starved government, businesses are expected to play role in social transformation of the country. 

This being the case, such business leaders who dare to do the right thing, must be encouraged, Dr Mehra says. "If we tell people that it is all right to make mistakes, they too will come up with the ways  of tackling those mistakes. If Thomas Allen Edison  had been forced to give up after his initial failures to create the electric bulb, the ultimate phenomenal success would never have seen the light of day," he says. 

Corporates should be more proactive in checking insider trading

The Financial Express, Tuesday, July 24, 2001 

With decision makers in the corporate sector getting embroiled in controversies, fear and scepticism reigns the stock  market and business channels. Ensuring transparency and quality of corporate governance, according to Dr Madhav Mehra, international management expert and chairman of World Quality Council, is the only hope to rid the corporate sector of the crisis and regain lost confidence.  In the interview with Tarun Narayan, Dr Mehra spells out some of the challenges, solutions and initiatives that business establishments would need to undertake to enforce a wholesome corporate governance mechanism. Excerpts:

In India what are the factors acting as deterrents against enforcing corporate governance?

There is a lack of strong-willed legislation to convict those corporate professionals from the top hierarchy who are accused of malafide indulgence, like insider trading. The laxity in implementing strong legislative strictures or punishments acts as a major deterrent. In advanced western nations, chairmen and other top-level officials, if caught in the act of indulging in insider trading, get convicted and even face rigorous imprisonment. Sadly, in India, we do not have such a precedent. The corporate establishments themselves are not proactive enough to institutionalise a complete and flawless system of business functioning leading  to good corporate practices.

What are the major implications  that  corporates and economy suffer from as a consequence of non-enforcement of transparency?

There is a flight of capital and investments to Southeast Asian nations. Foreign investors are no longer fun ding their way into Indian corporates due to the lacklustre image and lack of credibility of some of the Indian corporates and financial institutions. The stock market has gone into depression  with bourses consistently registering all-time low since the past few months. The confidence of the ordinary shareholders, too, has been dwindling by the day.

With structural limitations how can an effective corporate governance concept be implemented?

There is no paucity of judiciary provisions to castigate the offenders and usher accountability in corporate functioning. It is just that the provisions are not being implemented with the much needed resolve and speed. Hence, applying legal solutions to take the crisis to its logical destination would be one major solution. Second, corporates themselves need to wake up to the efficacy that value systems, like probity accountability, honesty and integrity holds, to ensure a transparent a smoothly-run business enterprise. They should realise that a corporate not just accountable to the shareholders but also t o employees, customers, suppliers and lenders. The need to bring into action a collectively participatory system where each if the mentioned organs feels a sense of belonging towards the organisation. This would facilitate a genuine contribution from the multiple communities directly or indirectly linked wit the business operations. They would lead to progress in the business, optimism in the market and rise in GDP due to higher production and income and thereby a macroeconomic progress in its integrated finality.

What modus operanti do you suggest to involve employees as part of the decision making process. 

The directors and the other honchos of the company should not  underestimate the capabilities of the employees when it comes to the decision making process. In the same vein. It is also important that  the employees are sensitised to the  boundaries that they should not transcend. There should be a single minded and clear communication to all the employees across hierarchies of the business and social objectives that the company is planning to execute. This would make  all the employees not just focus on the jobs but also assist organisation in embarking on rational decision making initiatives.