“Corporate responsibility and governance need to be principle-based, rather than based on rules and frameworks that become a tick-box exercise and may invite evasion”
Director General, Confederation of India Industry (CII)
The ministry of corporate affairs had released the National Voluntary Guidelines on Social, Economic and Environmental Responsibilities of Business in July last year. Recently, the ministry proposed the Disclosure Framework for the Annual Business Responsibility Report to be provided under the e-governance portal (MCA-21) for information to all stakeholders. The importance of reporting to stakeholders in a transparent and accountable way cannot be undermined.
An effective corporate governance system prevents any illegal action against stakeholders. On the other hand, an effective socially-responsible corporate code would prevent actions that may be within the law but inappropriate because of their consequences for some or all of the stakeholders. Although the relation between the two facets is complementary, governance has a symmetric effect on the discharge of a company’s social responsibility. It is well acknowledged that good governance leads to value creation; at the micro level, good governance can also prevent managers from making poor decisions. Adopting good governance ensures that the company achieves profitability and environmental, social and economic value for society.
The Companies Bill, 2011, proposes to follow spend on CSR activities on a “comply-or-explain” principle, which makes compliance with the guidelines effectively compulsory. These norms seek to move away from the realm of voluntary initiatives, disregarding individualised action plans developed by corporations from lessons they have learned over the years. While corporations are cognisant that resource-efficiency and community investment have a positive impact on business operations, they are still struggling to embed sustainability principles into each business functions.
CII was an active member of the Guidelines Drafting Committee and provided regular feedback. As an institution, CII found the guidelines comprehensive, but they suffer the risk of being utopian at various places and detached from realism in some of the nine principles.
CII also finds the guidelines to venture into prescription, which in our opinion is more than guidance. Prescribing an implementation framework within an organisation, though no different from a typical business process, is welcome but may not be required as part of the guidelines. Further, the medium, small and micro enterprises guidance needs comprehensive review. There is a need to understand the realities of these enterprises in order to suggest any sort of guidance. Moreover, it is misleading to put these industries under one category.
The reporting framework may be well-intended and good to put out in the public domain but it covers topics where setting the measurement parameters may not be plausible. Moreover, the application of one reporting framework for all entities will be difficult since it will differ for each one of those. In addition to consensus, for corporations to observe the norms would require considerable managerial expertise. Since many enterprises now straddle numerous legal, regulatory, cultural and business environments, the challenge of compliance in a prescribed format may be complex.
I feel that since business exposes entities to multiple regulatory regimes, great caution is required while imbibing international practices into the domestic framework since each nation is at a different economic stage. Also, over-regulation is undesirable and can impede growth instead of boosting it. An inclusive approach to governance is welcome; but whether the scales are being tipped too far in empowering stakeholders and preventing boards and managements from managing the company in the long term also needs to be analysed. I feel that an optimal governance regime is a hybrid one, in which entities are encouraged to aspire to adopt best practice guidelines, at the same time ensuring compliance with the stated regulation.
We need to develop tools and incentive structures that are more robust in the face of rapid business innovation, and procedures that leave no doubt as to the stakes involved. Corporate responsibility and governance need to be principle-based, rather than based on rules and frameworks that become a tick-box exercise and may invite evasion.
About Chandrajit Banerjee : Chandrajit Banerjee is the Director General of Confederation of Indian Industry (CII). Mr Banerjee has been with the CII for over 24 years and has been the Director General, CII since May 2008. Mr Banerjee is a Post-Graduate (MS) in Economics with specialisation on Economics of Planning and Econometrics from the University of Calcutta. Earlier, he did his Graduation from St. Xavier’s College (Calcutta) in Economics (Hons).
As Director General, he is responsible for overall operations of CII. Prior to his appointment as Director General, he held several senior positions in CII. Mr Banerjee has been responsible for important areas of work including the Sectoral Verticals – Manufacturing, Services, Agriculture and Life Sciences Sectors and the SMEs. He has led key policy work of CII in the areas of Economic Policy, Financial Services and Corporate Governance (he was also the First Executive Director of the National Foundation of Corporate Governance -NFCG, an organization set up by the Ministry of Company Affairs, Government of India). He continues to be in the Board of Trustees of NFCG as a Founder Trustee.
Earlier Mr Banerjee has served as Head of CII’s regional operations in the Northern, Southern and Western Regions.
Over the years Mr. Banerjee has worked out of the CII-Headquarters in New Delhi for several years and has also been based at Kolkata, Chennai, Mumbai, Chandigarh and Ahmedabad. He was also in Bangalore to initiate the Centre of Excellence of the Indian Machine Tool Manufacturers’ Association (IMTMA), which is a state-of-the-art centre for training, conventions and trade fairs.
Mr Banerjee is in various advisory committees of the Government of India. He is the Vice Chairman of the Asia Pacific Chapter of UFI, The Global Association of the Exhibition Industry. He is the Co-chairman of the Governing Council, Overseas Indian Facilitation Centre (OIFC), a not for profit public private initiative of Ministry of Overseas Indian Affairs (MOIA) and CII, established in 2007. Mr Banerjee is also a Member of the Board of Governors of Indian Institute of Management (IIM), Ranchi.
Mr Banerjee has been honored with the China-India Friendship Award by the Chinese Premier Wen Jiabao for his contributions towards the development of bilateral ties between India and China. With 63 offices including 10 Centres of Excellence in India, and 7 overseas offices in Australia, China, France, Singapore, South Africa, UK, and USA, as well as institutional partnerships with 224 counterpart organisations in 90 countries, CII serves as a reference point for Indian industry and the international business community.