The Practice of Corporate Governance is as Important as Social Responsibility

In previous articles, we have seen how CSR is practiced by companies and how the present times with their myriad challenges need companies to be socially and environmentally responsible. In this article, we look at how companies first need to shore up their internal governance mechanisms before turning to the outside world to display their social concern. The focus here is that unless companies set their own house in order, social responsibility cannot be achieved. We need not turn farther than the example of Satyam Computers (now merged with Tech Mahindra) wherein the company was indeed practicing CSR but internally the corporate governance structures were so rotten that the scam once it came to light was mind boggling.

This example shows that good corporate governance is a prerequisite to CSR. For instance, the various charitable trusts and the 108 Ambulance services that were being sponsored by Satyam ran aground once the scandal became known to the public.

This shows the need for good internal governance first and then practicing CSR as otherwise there would be issues of credibility and trust. The other example is that of the Enron Corporation which in itself was engaged in dubious internal accounting and shady business practices. No wonder that the shareholders and other stakeholders who invested in Enron were left flabbergasted with the extent of the corporate mis-governance.

The implications of this are clear. Corporate leaders ought to concentrate first on providing sound governance and fair business practices. Then they should look towards practicing CSR.

The point here is that companies ought to walk the talk where CSR is concerned and hence, they must first be internally and externally conscionable. This can be actualized by following transparent accounting, oversight over business practices and regular auditing of the company’s procedures and processes.

Only when whistleblowers are encouraged and there are mechanisms for grievance redressal can there be good corporate governance. And only when there is good corporate governance can there be effective concern for society.

The key take away from this discussion is that companies must actualize their vision for society by following sound business practices which would go a long way in ensuring reputational benefits and top of the mind recall.

For instance, companies like Infosys are known for their good corporate governance world over and hence society looks up to them for guidance and direction whenever ethical and social concerns are discussed.

Further, these companies set standards for others to follow and hence are considered benchmarks on which corporate governance ought to be measured.

It is apparent that good corporate governance is the first step towards keeping employees, shareholders and other stakeholders happy and hence is the first step towards practicing CSR.

When companies behave with integrity and trust they engender confidence among the stakeholders which translates into socially responsible business practices.

In conclusion, good corporate governance is becoming more important by the day and with the spate of scandals that have rocked major corporations in recent times, it is imperative that companies follow sound business practices.