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Today's Paper BUSINESS

Published: November 7, 2011 00:00 IST | Updated: November 7, 2011 04:21 IST

Need for sustainable wealth creation

L. V. V. IYER

The rash of protests across the Atlantic over corporate greed in recent weeks is symptomatic of a deeper malaise,
something which cannot be wished away. Unless global economies take serious note of the simmering anger and
sense of alienation of the vast numbers, there is a real danger of a social upheaval of global dimensions. Apart from
macro economic measures to tackle the deep inequalities between the 1 per cent and the 99 per cent of the
population as in America, the failure of the overarching shareholder-centric corporate governance model of the U.S.
has been one of the main factors for such inequalities and hence needs to be recalibrated.
Shareholder-centric model: It can be said that an overarching shareholder-centric corporate governance model
practised in many countries, including India, results quite often in the redistribution of wealth and not so much in
the creation of wealth. For want of a sustainable balancing of the interests of the various stakeholders in a corporate
body, such an overarching shareholder-centric corporate governance model results in a skewed redistribution of
wealth accompanied by wide inequalities. This phenomenon is taking place in the Indian corporate sector also.
If India has to come out of deep poverty, sustainable wealth creation has to take place. Although, social
subsidisation by the government can alleviate poverty in the short-term, the long-term solution to eliminate poverty
can only be through sustainable wealth creation.
An inclusive model of corporate governance may be defined as a set of systems, processes and principles, which
ensure that a company is governed in the best interests of all stakeholders. The set of systems that help the task of
corporate governance would include certain structural and organisational aspects of a company. The set of
processes which help corporate governance would embrace how things are done within such structures and
organisational systems. Principles would embrace those aspects of corporate behaviour and conduct which society
expects of a good corporate citizen. When you talk of the stakeholders they do not mean only shareholders; a
company would typically have five stakeholders, namely, employees, customers, suppliers, community and
shareholders. To be able to serve the best interests of all stakeholders, a set of systems, processes and principles
have to be put in place.
Soft aspects: While various regulations for corporate governance in India and abroad have talked of the various
systems and processes, the principles which a corporate governance model should embrace to take care of best
interests of all stakeholders have largely remained un-emphasised. These are the soft aspects which in some ways
drive wealth creation in a sustainable manner.
Employee innovation and development: The first principle is to enthrone merit in the organisation. A merit-based
organisation where leadership qualities are constantly nurtured is the organisation of the future. If Indian corporate
sector has to create wealth on a sustained basis, it has to share wealth and power with the most outstanding
employees. Venture capitalists in India have not shown the daring and the conviction to support some of the best
ideas. This has to happen to make the Indian corporate sector one of the most innovative and creative engines of
wealth creation. Companies have to encourage some of the most outstanding employees to innovate and create even
if it were to result in failures. Stock option schemes in India have now lost the attraction. It is time the corporate
sector offered attractive stock option schemes to reward the most outstanding and meritorious employees.
Succession planning has to be taken seriously even in family-run companies so that leadership positions are filled
up only on the basis of merit and performance. In order to create a deep sense of belonging among the employees, it
is imperative that the affairs of the company are carried on in a fair and transparent manner.
Creating customer satisfaction: When it comes to customers, companies should give value for money. Customer
preferences and needs should be constantly studied to create products and services for customer delight.
Nurturing suppliers: Suppliers are the backbone of the manufacturing sector. The corporate sector has not generally
felt the need to nurture quality suppliers. Suppliers are stakeholders who have to be nurtured, to achieve customer
delight.
Supporting community: Interests of the immediate community with which companies have interdependence, would
have to be taken care of. Most of the societal problems that the corporate sector causes are out of the absence of

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genuine concern for the members of the immediate community which has been displaced or which has suffered
environmental degradation by companies. Unless a humane and holistic approach is adopted in this respect and the
genuine concerns of such community are addressed, any model of corporate governance would be a farce and would
not create wealth in a sustainable manner. Hence, an inclusive corporate governance model can ill-afford to ignore
this aspect.
Once the interests of the above stakeholders are taken care of, with investor-friendly measures the interests of the
shareholders would get automatically looked after.
In sum, like Sec. 172 of the Companies Act, 2006, of the U.K., statutory provisions would have to be built into our
Company Law so that an inclusive model of corporate governance becomes the statutory duty of the board. Time
seems to be propitious to bring in this important change.
L. V. V. IYER
Corporate Lawyer
He can be contacted at:
iyerassociates@sify.com
Although, social subsidisation by the government can alleviate poverty in the short-term, the
long-term solution can only be through sustainable wealth creation.
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