Can Education be the highway to Corporate Governance ?
May 9th, 2007 | by Ridhima Suri |Like many other management philosophies, corporate governance has been in the spotlight world over. Corporate Governance initiatives in India began in 1998 with the Desirable Code of Corporate Governance – voluntary code published by the Confederation of Indian Industries (CII), and the first formal regulatory framework for listed companies specifically for corporate governance, established by Securities and Exchange Board of India (SEBI). The latter was made in February 2000, following the recommendations of the Kumarmangalam Birla Committee Report. Based on the recommendations of this committee, a new clause 49 was incorporated in the Stock Exchange Listing Agreement. For all companies with the paid up capital of over Rs. 30
million, the requirements were made applicable as of March 31, 2003.
However, with an objective to improving corporate governance standards in India, SEBI once again constituted a committee in 2002 under the chairmanship of Mr. N.R. Narayana Murthy to review the existing code on corporate governance. The committee evaluated the adequacy of existing practices and suggested primarily related to audit committees, audit reports, independent directors, related parties, risk management, directorships and director compensation, codes of conduct and financial disclosures.
The creation of strong governance frameworks is regarded as a mechanism to prevent any unintended consequences of the new management ethos, without necessarily inhibiting the flexibility, innovation and entrepreneurial risk now required. Good corporate governance helps ensure that corporations take into account the interests of wide range of constituencies, as well as of the communities within which they operate. Further, it ensures that their Boards are accountable to the shareholders.
In the opinion of the SEBI Committee, the imperative for corporate governance lies not merely in having a code of corporate governance, but in practicing it. What counts is the way in which these are put to use. The committee, time aand again stressed that companies should comply with the corporate governance code, in substance and not merely in form.
However, Corporate Governance in India is developing in a highly turbulent and fluid context. The inevitable uncertainty caused by this context makes the revision of corporate governance an ongoing concern. To participate in the global economy, Indian corporations have to meet international corporate governance standards, but they have to do this without neglecting their allegiance to the domestic market. And this process has to start from the grass-root level.
Education and Corporate Governance
Today’s students shall be tomorrow’s managers. The future CEOs, managers, and administrators are sitting in the schools and colleges of today. The future of the nation depends on their knowledge, their character and their understanding of responsibility towards the society. Hence, instead of a code of conduct or governance being forced on them while on their jobs, this sense of responsibility should come naturally to them through a system of value-added education. Knowledge on moral conduct, civic sense, environmental hazards, social ethics etc. should be imparted at high-school level as well college level to make the student more conscious about his expected role in the society.
The debate is how to change the educational response to the growing needs of Corporate Governance.
First, increased emphasis may be placed on the teaching of ethics—to those who will become leaders and managers confronted with alternatives that would involve choosing between right and wrong (or making a choice of the lesser of two or more wrongs. Taken to its extreme, this may involve some effort to effect moral change among those studying ethical issues.
Other approaches to instruction will place heavier emphasis on values—individual, organizational, or both. Some simple examples are to include preferred behaviors such as treating people with respect, exercising speed in decision-making, insuring transparency and the sharing of information, and emphasizing simplicity in processes. Being good in life as a simple rule would help go a long way, as well.
Many colleges and university programs in business now require courses in Ethics or have added an Ethics component to their courses in marketing, finance, human resource management, etc. For eg, in the U.S., a recent doctoral study (2005) was conducted in the University of Nevada, Las Vegas. The sample size of the survey was 101 public state higher education institutions in the United States, and 16 other institutions. Some of the findings were
1. 90% of the institutions reported that thy had a component of Ethics course in their curriculum.
2. 29% of the institutions reported that they had a separate department or discipline for teaching Ethics.
In India , the Ministry of Company Affairs, Government of India set up the National Foundation of Corporate Governance (NFCG) to promote the sentiment of corporate governance practices**.
1. The stakeholders are
• Ministry of Company Affairs (MCA)
• Confederation of Indian Industry (CII)
• Institute of Company Secretaries of India (ICSI)
• Institute of Chartered Accountants of India (ICAI)
2. In 2004, six institutions were approved as national centres for corporate governance. These were
• Indian Institutes of Management (IIMs of Ahmedabad, Bangalore, Kolkata, Lucknow)
• Administrative Staff College Of India, Hyderabad
• Indian School of Business, Hyderabad
No doubt the existing framework for the cause is worth positive acknowledgement, yet as a further step, integration of governance knowledge with education is a must. Finally, the corporations can fill gaps in education themselves. Approximately, 80 percent of the largest U.S. corporations have formal ethics programs and 44 percent of these firms provide ethics training. India is going “Corporate”;yet, “Governance” is important. This can be facilitated with a prompt educational response!A few lessons learnt elsewhere and integrating practice (read more practice) with preaching (read more preaching) can do a good trick!
**(July 31, 2004). 6 months named as corporate governance centres. Business Line, Retrieved May 8, 2007, from http://www.thehindubusinessline.com/2004/07/31/stories/2004073102340600.htm
*** Hernquist, A. (2005, February). A Survey on Ethics Courses in State College and University Curricula. Retrieved May 8, 2007; An online record on the Study at http://www.collegevalues.org/pdfs/proceedings/Hernquist.pdf
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