There are many Directors who want to follow good governance practices. However, when they see others taking shortcuts to progress, they fail to hold on to their principles. There lies the problem in governance. They start doing the wrong thing to justify their role in shareholder wealth creation. They walk away from good principles, like the fox, in the fox and the grapes story. The reason they give is “we are in business to make money and we have to compete with those others”
So what happened in the Fox and the Grapes story?…
Once there was a hungry fox. He went in search of food. He could not find any food. At last he reached a vineyard. Bunches of grapes were hanging. He wanted to get them.
His mouth began to water. The grapes were very high. He tried to get at the grapes. He jumped again and again. But all his efforts were useless. The grapes were too high for him to reach. He got tired. He was sure that he could not get the grapes. He gave up the attempt. He went away saying that the grapes were sour.
Most companies practice the easy good governance habits as they are the ‘low hanging fruits’. So they will form committees, appoint independent people with or without the required skills and tick the boxes on policies, structures and disclosures. When a difficult decision arises, the grapes become sour as they are not within their reach. Therefore, where good governance fails is in improving the quality of information and decision making process, avoiding conflicts of interest, getting good quality and sustainable profits.
If directors want to have a glowing reputation or be a shining example on governance to others, Corporates will be so much better governed. All shareholders will be treated equally, monies will not be siphoned by related parties and there will be less corporate frauds. Therefore, the challenge is not to justify ‘why we need good governance’ but to say ‘why not’!