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5 breakthroughs in the Corporate Governance Space

The tone at the top is an important determinant in the culture of a company. Sound Corporate Governance practices help set the right tone at the top. As is the case with all processes and practices, those relating to Corporate Governance are also dynamic in nature, and evolve with time while the value system remains constant. Below are some of the breakthroughs in the area of Corporate Governance.

Artificial Intelligence (AI) and its impact:

The impact of AI is not restricted to the science and technology domain alone. Processes relating to Corporate Governance are also likely to be influenced. From aiding in writing a proper notice and agenda for meetings of the Board and its committees, to helping write agenda notes, AI is coming in handy for secretarial persons. Further, AI can be used as an aid in the audit process within the organisation. It can help identify deviations from processes, thereby reducing reliance on human errors. Since both risks and opportunities associated with AI are immense, Risk Management Committees are keeping busy, identifying, and possibly mitigating, some of these risks.

ESG (Environmental, Social and Governance) and its impact:

ESG has been gaining significant momentum in India. The disclosures relating to ESG are also increasing, with SEBI focussing on the quality of disclosures. Investors, especially institutional investors, are not only focusing on the profits earned by a company, but also its ESG practices and sustainability. The impact of the company’s operations on the environment, the responsibility of the company towards society, its employees and its stakeholders, and the governance practices in the company are being considered by investors before investing. All this has led to ESG being an agenda item that all Boards are required to address. Some companies have gone a step ahead and constituted dedicated ESG committees to focus on the ESG efforts of the company.

Data Privacy, Cyber Security and its impact:

Post Covid, cyber attacks have unfortunately become frequent. All companies are investing in cyber security, with this being an agenda item in all Risk Management Committee meetings. Strong processes are needed to ensure that the risk of cyber security is anticipated and mitigated. Protection of trade secrets, details of employees, vendors, and customers is a very important task for companies because a breach will severely damage the reputation of the company, and also give rise to legal consequences.

Focus on DEI (Diversity, Equity and Inclusion) and its impact:

“Diversity”, “Equity” and “Inclusion” are equally important. Diversity refers to the representation of a group of persons who possess different characteristics such as gender, race, nationality, etc. Equity is the practice of treating all persons equally and providing equal opportunity to all. Inclusion refers to providing a sense of belonging and value within an organization. In order to promote good governance practices, companies are now taking steps towards DEI. Nomination and Remuneration Committees now have this item on their agenda. Further, with a focus on ESG, and in turn on employees, there is a greater demand for companies to take steps necessary in this regard.

Social Media and its impact:

Social media, as distinguished from traditional forms of media, is instantaneous. With younger persons being associated with the workforce, social media interactions for a company are very important.  It is revolutionising the way people communicate and interact with one other. However, social media brings its own challenges. From media reports being based on rumours, to unverified information finding its way to media, to employees uploading videos of seniors who are rude or to internal communications being leaked, there have been a number of instances that have occupied space in the media the past few months. All these impact the reputation of a company. Boards and Risk Management Committees are requested to discuss this in detail. A number of companies have also made social media policies and guidelines for their employees.

The trends in Corporate Governance will keep evolving. A company needs to adopt in order to survive.

Heeral Nichani