By Sarju Simaria
It is interesting to note that over the last couple of years, the general perception is swinging between business interest and conducting the business responsibly. While Corporate Governance is all about governing the business operations, somewhere in this quest the business line and governance line became parallel expecting that the convergence between the two will eventually happen. The question is, Has that happened? With all that is brewing around us, the answer seems to be an obvious, No.
Corporate Governance alias Business Governance is not a mere checklist measure. In today’s dynamic business environment, it is imperative to demonstrate substance over form and it is time institutions recognised this change.
Today synergy between business growth and commitment to society is looked upon as a complementary ancillary. Business strategies will have to be inclusive in growth. The recall value of an institution’s existence will now depend on how proactive the organization is on transparency and if one is not prepared to be transparent, they will be out sooner than later.
Clearly, the way forward is business decisions being made must resonate to long term sustainability and pass the muster of taking into account the interest of all the stakeholders. In times to come, partnerships will emerge winners as a hybrid model of social good and reasonable returns.
The regulators are most neutrally placed as a custodian for orderly growth of the industry. We all are noticing the revamping on regulations being carried out in the last couple of years and more may be on the anvil. But if you wore the lens of regulators, one would agree that they are indeed on track. They are not only continuously plugging the loopholes and balancing the risk contentment but also rolling out initiatives to make the financial and market system more liberal and progressive. Majority will agree that despite the present global uncertainty that exists today, our economy is stronger and resilient, and this is on account of existence of robust governance model and proactive initiatives taken by our regulators. Now, it is imperative for the industry to reciprocate to the said intent and continuously be exemplary on adherence to the prescribed governance model. And I think cleansing through introspection is already happening at a rapid pace and all constituencies are converging towards pivotal point i.e., working towards a common interest of society at large.
With all that is existing and changing fast, we are talking about US$26 trillion economy by 2047-48, with a per capital income exceeding US$15000 (nearly, six times the current value). So, there is no room for anyone to complain.
A better governed company gets a better valuation
Today the investor is well informed. Therefore, high growth projections or over leverage or superlative margins are not music to the ears, anymore. Everyone knows that hyper growth is never a permanent phenomenon. What counts is businesses which show superior cash generating model, good balance between leverage and liquidity, a sound and a resilient business model, which not only generates consistent performance but is also resilient enough to absorb shocks. Growth, margins, and RoE will continue to remain important for investors but steady and consistency in performance will be preferred over erratic graphs.
With insistence from the regulator a lot of prominence is stressed upon on the Environmental, Social and Governance (ESG) framework to assess an organization’s business practices and performance on various sustainability and ethical parameters. The Institutions are realising that their ratings and standing will depend on how much adoptive the businesses are towards ESG. This will further enhance the bar of setting the culture of caring and paying back to society. By the way, the Indian story is yet to unfold here.
Soft factors that one has to be mindful on Business and Governing the Business
My take on emerging trends
– Winning trust will have the highest gravitational pull for sustainable growth
– Past has shown that exploiting opportunities for unjust enrichment and unjust gains is a sure shot recipe for reputational insolvency in future
– Robust process readiness should come first and precede the business roll out and not vice versa
– There is going to be a paradigm shift from promoters’ primacy to board primacy
– Inclusive and all-round growth will overwhelm power and greed
– Obscene valuations will disappear. In other words, valuation will have to be earned and not unilaterally demanded; a switch in thinking for foreign funds to stay invested for longer period
– Simplicity will win over complexity and proliferation of cob-web structures, tax and accounting innovations will have to be given a pass
– Technology interoperability means you are being watched and catching up is a wink away
The count can go on, but for the time being let us rest hear and pick up the thread sometime later.
The author is the CFO of Utkarsh Small Finance Bank.
Views are personal.