5 Toxic beliefs impeding good Corporate Governance

#1: If more companies follow a wrong practice it can be right.
Directors move from board room to board room. Unfortunately, when they go into a good company which is trying to do the right thing, they convince the others with a wrong practice adopted in another company where they have more influence. In the former company they may be in a non executive capacity, but in the latter in their executive role they influence the management and auditors to accept the wrong practice and they go to other boards and perpetuate this. Thereby, making more companies follow the wrong practice. Very well knowing that two wrongs don’t make a right!

#2: Corruption cannot be measured as there is no proof.
It is true that measuring corruption will have significant challenges. But with better governance measures it can be measured and controlled. Therefore, by observing the governance practices of a company, others’ would know the level of corrupt practices in companies. Generally, when you hear a name, by reputation people know or understand about the level of corruption.

#3: Profit is everything.
Any action can be justified as long as you make a profit. This is a wrong culture spread in badly governed companies. They would do it ‘by hook or by crook’, suggesting that one need not be concerned with morality or other considerations when accomplishing their goal. Whereas, its about the triple bottom-line encompassing, how you treat the planet and people in your company whilst making a profit.

#4: Governance is a luxury that only rich companies can follow.
Some claim that the link between governance and profit does not mean that better governance boost profits, but the reverse—higher profits automatically translate into better governance. However, research does not support this claim. In fact better governance leads to quality growth of profits in the long term.

#5: Audit Committees will ensure good Governance
Companies sometimes set up an audit committee with a diluted focus and incompetent directors to hoodwink investors and regulators into believing that they are a good corporate citizen. In reality, Audit committees take the blame for governance lapses but the real reason is that boards do not often give the audit committee the right scope or support it with the right processes. Audit committee is used as the goons who carry out the orders of the Godfather Al Pacino!

About surenraj

“Views expressed are my own”
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