[Opinion] Evolving Changes & Trends in Corporate Governance

T.V. Ganesan – [2023] 148 taxmann.com 361 (Article)

Introduction

It is important for companies and boards to stay ahead of the present norms of corporate governance practice and must be proactive in evolving their practices since the business environment becomes increasingly complex and global. Understanding the high standard of corporate governance, requires a deep understanding of stakeholders’ continuously changing needs and expectations and also the ability to accept and embrace new technologies including digital and IT systems and practices that will support effective governance. Overall, the future of corporate governance lies in accepting the evolving changes and trends and the Board should align with the needs and interests of stakeholders and also ensure the guidelines and regulations of SEBI and the Companies Act, wherever it is applicable. The future of corporate governance would be shaped not only by the changing stakeholder expectations, technologies, digitisation, increasing importance of sustainability and environmental social and governance (ESG) related issues. Further, the role of the Board of Directors will also change to include a broader range of skill sets, and expertise and also includes a full and deeper understanding of the Company’s business, its stakeholders, market, customers, policies and procedures. This article highlights the various evolving phases of corporate governance and the trends to meet the rapidly changing business environment of the future.

Corporate Governance in its present form

It is to be understood that the main aim of corporate governance in the initial phase was to increase the independence, effectiveness and power of the Board as well as Audit Committee Members for achieving shareholder focussed supervision and management of the Company. SEBI and MCA both played significant roles in the initiatives that were carried out in a variety of ways and they continue to improve the guidelines and the norms of corporate governance to take it to the next level or on par with global standards of corporate governance. The essential elements of good corporate governance include:

(a) Rule of Law

(b) Participation of all stakeholders

(c) Transparency and accountability

(d) Implementation in a timely manner and responsiveness

(e) Inclusiveness and equity

(f) effectiveness and efficiency.

Factors affecting the future of corporate governance

(a) Digitisation: One of the important factors that will affect the future of corporate governance is the impact of technology and digitisation. If we interpret, we can vouch for the rapidly changing technology how the companies are operating and communicate with the shareholders for dissemination of information and e-voting etc. This can be further augmented with Artificial Intelligence, data collection, database, block-chain etc. which are likely to play a big role in future. With the increased digital communication, and data transmission, companies can disclose information to the stakeholders in a faster way and thus it can prove one way to obtain consent or approval of the stakeholders etc. Thus, this will lead to increased transparency, and accountability in corporate governance.

(b) Virtual meetings and e-voting: MCA has rolled out circulars for allowing virtual meetings and e-voting during the Covid-19 pandemic and thus technology has allowed board and shareholders meetings to be conducted virtually. It has increased efficiency and accessibility and quick passing of resolutions for conducting the business of the company.

(c) Stakeholders’ engagement and dissemination of information: Companies can now communicate to the stakeholders with ease and in a faster way through technology and thus engage with the stakeholders for the dissemination of information. Companies also resort to social media and other online/e-voting platforms to communicate with the stakeholders for various information as well as for securing approvals.

(d) Data Analysis for Risk Management: Companies can effectively utilise data analytics and machine learning to assess the risk and effectively manage the various risks associated with the Company by preparing remedial measures.

(e) Automation Technology: With the availability of technological development like Artificial Intelligence, and automation, companies can automate the various routing compliances, tasks and processes, which will ultimately increase the effectiveness of corporate governance.

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