Pradnya Wadia

PG Finance
Roll No-163
Sub - Corporate Governance

Q1) What is long term strategy for a company? How does governance affect the
long term?

Companies face volatility as they expand across geographies. The geopolitical issues like
Middle East , China , Brexit etc. are a major challenge for companies. They are also plagued
by the changing dynamics of the workforce as millennials do not believe in the concept of
loyalty to one company and building a brand, hence talent retention is a major challenge. In
this given scenario, the long term strategy for a company is to strike a balance between the
need of the millennials to continuously explore and the company to establish sustainable
competitive advantage which helps it build a strong brand for a long time in the future.
Governance is the enabler for striking this balance in the volatile environment. Corporate
governance is thought of as a mechanism put in place to protect shareholder wealth from
the claws of opportunistic managers. It typically arises alongside phrases such as investor
myopia, short-term goals, incentive alignment, financial crisis, and even corporate
misconduct and accounting fraud. In reality governance is a tool to the advantage of
companies, a transparent company finds it easier to sustain the volatility and establish
confidence and trust among all its stakeholders giving it a strong hold in the future.

Q2) Why must a company be 'good'?

The reputation of a business is very essential for its survival. The trust and confidence of
consumers has a direct and profound effect on a companys bottom line. In the past,
businesses relied on word of mouth by their stakeholders to establish, build and maintain
their reputations.Recently, the importance of reputation has become increasingly apparent,
as companies such as BP and Toyota had to cultivate their responses to crises in order to
maintain the reputation and standing of their companies to the world.
In this modern age of social networking, websites, and other methods of instant
communication, businesses make a conscious effort to protect their reputations on a
constant basis and be responsive to any crisis that may have an impact on their reputation.
While an intangible concept, having a good reputation can benefit a business in a multitude
of ways including: consumer preference; support for an organization in times of crisis or
controversy; and the future value of an organization in the marketplace.
If an organization has a good reputation in the marketplace, consumers prefer that company
even if there are similar businesses offering the same products or services for different
prices e.g. Tata Group in India is a much decorated group for its ethical business practices
and hence associated with trust by its customers. The reputation of an organization can
enable a company to differentiate its product in highly competitive markets, allow it to have
premium pricing, and can become the ultimate factor in whether a customer decides to
patronize one business over another.

Q3) Relate this article to The Stakeholder Theory of CG.

The stakeholder theory is a theory of organizational management and business. That

addresses morals and values in managing an organization. In the traditional view of a
company, the shareholder view, only the owners or shareholders of the company are
important, and the company has a binding fiduciary duty to put their needs first, to increase
value for them. Stakeholder theory instead argues that there are other parties involved,
including employees, customers, suppliers, financiers, communities, governmental
bodies, political groups, trade associations, and trade unions.
The article very aptly focuses on the stakeholder theory as the evaluation criteria for HBR
top Ceo list includes not just business profitability (shareholder) but three important
parameters; environment , social and government (stakeholder) and long-term business
sustainability rather than short-term growth and profit spurts in the while deciding 100 best-
performing CEOS. Also when the top three CEOs are interviewed all of them state that, social
and government are key parameters for success of any business.