Mukherjee: Embed good governance in business strategy
December, 17th 2010
Finance minister Pranab Mukherjee on Thursday poked the business community , saying governance, integrity and ethics of the management decides the sustainability of an enterprise.
The comments came at a time when a series of corruption scandals have put the focus on the government's own working and questioned the way companies conduct their businesses.
"Ethics and governance are the two brakes which should self-activate before an enterprise succumbs to a vicious cycle of ambition, greed and complacency," Mukherjee said at a function of the Institute of Company Secretaries in Delhi.
"Companies need to embed good governance as part of their business strategy to achieve their core objectives."
The finance minister said there were fine examples in India of companies which have followed corporate governance practices long before they were mandated. He said the debate over corporate governance had moved from the effects of bad governance on minority shareholders to the effect on all stakeholders.
"A company needs to balance the interests of different stakeholders," he said. "The current focus on the role of the boards and their independent directors is the result of corporate failure and corporate governance scandals in many parts of the world," Mukherjee said.
The minister said the subprime crisis in the US took place despite the stringent Sarbanes Oxley Act, which had set improved standards for all US public company boards, managements and public accounting firms. He said the US experience shows it is difficult to legislate against bad corporate decisions unless all the stakeholders are willing partners.
He said the current recession in the western world was triggered by mispricing of risk which led to excessive leverage and high prices of a wide range of assets.
"It is no longer farfetched to say that every craftsman or textile worker laid off from the diamond cutting shops of Gujarat or garment factories of Tirupur can trace her job loss to slowdown in global demand, precipitated by decisions of investment bankers in the West," he said.