Governance Beyond Compliance: Building Strong Boards in the Era of ESG & Tech

Governance Beyond Compliance: Building Strong Boards in the Era of ESG & Tech

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What kind of disclosures you provide to the board defines what kind of outcomes may happen. ESG has fundamentally changed how governance is looked at. It has expanded board's accountability beyond shareholders to the stakeholders.

Hello everyone, hope you are doing well. I am Deepak from Dess Digital. At Dess, we work closely with the CXO and other corporate governance professions to drive innovation and efficiency across board meetings, board evaluations, compliance management and other critical governance functions. For this discussion. It is our pleasure to welcome CS Govind Singh from RE Sustainability Limited as our guest today. Mr. Singh is the group company secretary and the head of governance risk ethics and compliance at RE. In addition to being a qualified lawyer and company secretary, Mr. Singh's qualification also include a bachelor's in business administration, certification in enterprise risk management, training in leadership and change and masters in business laws. He brings extensive experience in corporate governance, regulatory compliances and board level advisory with a strong focus on sustainability and long-term value creation. Mr. Singh, we are delighted to have you with us today and look forward to your insights on corporate governance.

Thank you Deepak. Thanks for the introduction.

I would like to ask you like in your experience what truly defines a strong governance culture in an organization and how critical is the board's role in setting the tone at the top beyond just policies and compliance.

I think strong governance culture is not defined by the number of policies in an organization but how decisions are made when nobody's watching. I think it shows up in the areas like risk-taking behavior, ethical choices, transparency, how the organization responds to negative media news. The board being the highest decision-making body in the organization and trusted advisers to the shareholder is a body that plays the decisive roles in shaping the culture. It sets the tone by giving various kind of approvals questioning the tasks that has been put by the management issues that it escalates behaviors that it tolerates. I think when shareholders nominates the board they kind of empower them with the authority and decision-making that they will work in the best interest of the company and the larger stakeholders. If the board focuses only on the short-term numbers, the organization follows them with the management following the board. And if they consistently emphasize on the integrity, risk, awareness and long-term values that becomes the embedded across the management and the organization. So if you look at the powers that board carries I think with the appointment of the management team whether it's the managing director and CEO the other CXO's team including the chief financial officer setting the processes controls mechanisms for the entire organization defining the risk tolerance levels defining the ethical standards for the organization defining the remuneration criteria KRA's for the leadership team are providing enough weightage to the governance parameters, the compliance, the ethical conduct, the integrity levels in the compensation metrics for the leadership team. KRA's is defining the delegation of authority. Fixing the accountability for key areas such as governance, compliance, risk management. Having the succession and planning for the leadership team and people watch the board very closely in terms of what board promotes what it questions what it rewards and that sets tone for the entire organization followed by the management. I think if board asks right kind of questions to the management if it makes very difficult and sets a clear priority that this is where the board's focus is that can define the culture for the entire company. Strong board always challenges the management. It always protects the whistleblowers. It welcomes dissent whether it is in the board meetings or outside the board meetings. It asks uncomfortable questions to the management. It declares the conflict properly and all of this combinedly defines the governance structures and the governance culture in the organization. If you look at historically the governance does not fail because the company did not have certain policies but it surely fails when the escalations are discouraged. The uncomfortable questions are not welcomed at the board level and the financial outcomes overshadow the ethics in the organization, the governance fades. So I think it's the board that sets the tone for the management to follow and the management being the representative of the board and the executive team sort of follows the guidance of the board and ensure the company functions in a governance culture.

Very well explained sir. Thank you. So sir like moving ahead how important is having the right mix of skill independence and diversity at the board level today and what risk do organization face when board composition does not involve with the business complexities.

It's very critical because you know board quality is ultimately determined by the collective capability of the board not the individual credentials. If you look at if somebody comes you know is a superstar director and the other board members do not contribute that board will not be able to function to the extent it should. So board effectiveness today is directly linked to the board composition. Businesses are facing regulatory complexity, technology disruption, ESG security and stakeholder activism at the highest level and one skill set cannot address all of this. So therefore the proper combination of the board having right kind of mix starting from having right kind of independent directors non-executive directors executive directors who carry different kind of expertise in various areas such as ESG supply chain human resource business excellence strategy business operations technical understanding of the business compliance controls audit consultancy project management, finance. If they come up with all this mix of skill set, that really makes the board capable to have the highest quality of decision-making, deeper strategy reviews, better risk anticipations, credible challenge to management. And if you do not have this, what happens is they end up overrelying on management directives because management gives certain narratives on the board. And if board is not capable of putting a right judgment to it they end up over relying on the management narratives. They miss at times they end up missing emerging risks. They end up providing superficial oversight. The focus narrowly focuses only on the financial reporting. And if you ask me why independence is fundamental. Independence is fundamental because it provides freedom from conflicts. It challenges the status quo. It provides willingness to challenge the existing combination of systems that are there in the organization. Protects the minority shareholders and if you don't have the proper independence, you end up having a situation where the board decisions are sort of dominated by the executive directors especially in the organizations where the chairman and managing director roles are not separated. So therefore having a right kind of mix at the board level having independence diversity is fundamental to the effective governance because it dominates the board's capacity to challenge management oversee risks provide right kind of guidance to the management and if they fail the board composition exposes the organization to strategic issues. They end up having not so great oversight, stakeholders confidence declines and ultimately long-term resilience in the organization does not happen.

That was very insightful sir again so sir ESG and technology are no longer side conversations how do you see them reshaping governance practices and how can boards practically use technology to improve transparency oversight and decision making.

So if you look today ESG has fundamentally changed how governance is looked at. It has expanded board's accountability beyond shareholders to the stakeholders. Stakeholders include all of the employees, communities, regulators and environment. Today governance credibility is increasingly judged by how well ESG risks and opportunities are identified measured and taken care by the organization. At the same time technology is a very powerful enabler for better governance boards today are moving from periodic looking back reviews to the real-time data-driven oversight and historically if you look at governance oversight was created or centered around financial performance compliance and strategy but with the help of technology with the focus on ESG it has moved towards the environmental impact social responsibility, stakeholders outcomes, ethical value creation and long-term sustainability of the organization.

Why this is happening and what it means to board is that focus is shifting from shareholders to stakeholders. There is an integration of the non-financial risks along with the existing financial risk that the organization needs to take care whether it is climate, human capital, reputational risks or other ESG related risks. There's always an increasing demand for transparency and disclosures because what kind of disclosures you provide to the board defines what kind of outcomes may happen. If you provide right kind of information to the board where the decisions are taken based on the information, right kind of information at the board level kind of enhances the stakeholder trust. It enhances the regulators trust on the organization and if you look at modern practices of technology where it is helping there is always an increased KPI dashboards that are coming in various kind of board tools that are available in market that helps board have a better right kind of information available at all times they can very well provide various kind of inputs with the help of the solutions that they have. Data available all times. They have a direct approach to the person who's uploading the information. There are risk heat maps that are available. There are compliance solutions available which gives timely data to the board and real-time access of the information. The board can even access to the company's hotline where the complaint can directly reach out to the board just to make sure that there is a proper oversight from the board to the whistleblower protection and the whistleblower mechanism of the organization. ESG matrix can be seen live by the board with the help of ESG solutions that are available in the market. So there's lot of automation happening in the market and technology is coming up to help the board to have proper kind of oversight on the company operations. ESG and technology fundamentally expanding the governance responsibilities by broadening board's accountability beyond financial performance and it includes sustainability stakeholders impact digital risk oversight. These require boards to adopt longer-term perspectives integrate non-financial risks and strategy to ensure greater transparency. I think good governance today is about foresight not hindsight and the board that gets the culture composition ESG and technology right build institutions that last.

Well sir, thank you for your time and sharing such insightful and practical views on corporate governance. Your inputs around board effectiveness, ESG and the use of technology will definitely resonate with today's governance professionals. Our focus at Dess is to make the best use of technology to make the corporate governance easier for board and professions. Thank you for being the part of the discussion and contributing meaningfully to the governance ecosystem. Also thank you to everyone who joined us today. Feel free to connect with us as we continue on our mission to make corporate governance technology easy.

Thank you Deepak. Thank you sir.