It is a good time to be in India — GDP growth is back on track, government reforms are in execution mode, ease of doing business is consistently improving and the macro economic environment is on the favourable side. Ideally, it should be a time of optimism and hope, with positive vibes abounding. However, not everything is completely rosy and positive. For several reasons, some obvious, some lateral and some even unfounded, capitalism, for the lack of a better phrase, is under siege in India. Public sentiment is not overtly positive and even negative in some instances towards the corporate sector. As Chief Economic Advisor Arvind Subramanian observed recently, public opinion about the private sector has changed from “crony capitalism” to “stigmatised capitalism”. In his view, there isn’t enough trust in the private sector today and that is making it much more difficult to give the private sector a bigger role in nation building. Such an approach can be detrimental in the long run.
However, what must also be acknowledged is that this public opinion has come about to some extent due to the private sector itself as also the general perception and situation in the Indian ecosystem. Recent issues of corporate governance across a spate of companies, including some reputed ones, have brought the reliability and credibility of India’s corporate sector into question. While it is important to note that most of these issues were handled eventually and in good measure, their short-term impact on the minds of the public has been quite negative. The onus is therefore on the private sector to dispel any fears and clear the clouds of doubt that persist. This will ensure better perception and rebuild the confidence necessary to trust the private sector.
Subramanian’s statement is a wake-up call for industry. A single solution will probably not work for an issue that is starting to become deep-rooted in the minds of the people. We need to handle this problem through a multi-pronged approach, focusing on both perception and action.
An often talked-about grouse against the corporate world is the lack of transparency on any kind of decisions. This has often been true as well. It is important that we embrace openness as a key corporate governance construct across companies. Appropriate and timely disclosures in the public domain by the private sector companies, especially related to major board decisions, would help in avoiding future controversies. All critical board decisions should be kept in the public domain, and those out of this ambit should be the ones that could impinge on a company’s strategic business interests. The guiding mantra here should be “communicate as long as it is not material non-public information”. Open and free communication, to the extent possible, will substantially help improve the perception of corporates in the mind of the common man. Corporate leaders need to communicate their decisions as well as their thinking processes.
In the recent past, corporates have often taken a less than satisfactory line towards corporate governance. While the rules may have left some scope for ambiguity, it is important that as stakeholders in this ecosystem, the private sector takes a conservative stand wherever it can. This does not mean adopting a holier-than-thou attitude. That might not be feasible and in many cases detrimental to the organisation. However, it is important to err on the side of caution as far as corporate governance is concerned. Not only will this approach avoid any regulatory or government censure, more importantly, it will help solidify the weakening belief of the common masses in the seriousness which the private sector accords to these issues.
The next innings of corporate India must focus on responsible capitalism. This will come about by moving from an approach of shareholder capitalism to stakeholder capitalism. The focus today continues to be working towards creating value for the shareholder. However, overall value creation is higher for all groups if a stakeholder approach is undertaken. This will include customers, employees, regulators, government and the society at large. This will involve having the ability to manage multiple bottom-lines and not just the bottom-line related to profits. It must include additional bottom-lines on customer centricity, employee welfare, government and regulator interactions and, most importantly, the value added to the general society by creating jobs and making efficient investments.
The rebuilding of trust in the private sector has different facets attached to it, and every aspect of this exercise requires sincere measures for taking the game to the next level, instead of just waiting for the government or the regulators to find solutions. We are on a new path and a different, better India is being created. It is imperative that the corporate sector is an active participant in driving this change. After all, it is also the power of the Indian private sector which has contributed to propelling India into becoming the sixth-largest economy in the world. The private sector has the capabilities and resources — we should treat it as our responsibility to use these resources wisely. A highly responsible and credible corporate sector can ensure a double-digit GDP growth in the coming years to take the country on course to becoming one of the top three economies in the world quickly, along with China and the US.
Clearly, India’s corporate sector is at a crucial juncture in its evolution. Not only does it need to seize the India opportunity with both hands, it needs to think constantly about what it can do to make the business world more credible. While this will require effort, it is undoubtedly the need of the hour.