This article has been written by Dhruva Dixit pursuing a Personal Branding Program for Corporate Leaders course from Skill Arbitrage.

This article has been edited and published by Shashwat Kaushik.

Introduction

On this topic, we will be throwing light on the impact of corporate governance on employee relations, covering various parts like what is corporate governance? the significance of corporate governance for good labour relations, challenges faced in corporate governance in the Indian context and a few case studies to supplement the hard point that good corporate governance brings improved employee relations and growth to the company.

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Establishment of robust and effective corporate governance practices right from the beginning not only brings an ethical and positive working environment within the company but it also instils confidence in employees and investors and attracts foreign investments. It is the key that unlocks the doors to sustainable growth and economic prosperity.

What is corporate governance

Corporate governance is a set of internal controls, policy and procedures that form the framework of a company’s operations and its dealings with various stakeholders, such as customers, management, government and industry bodies, suppliers and employees.

The corporate governance framework or policies should be such as to uphold the principles of transparency, integrity, ethics and honesty. It is the soul of an organisation and must be adhered to while indulging in any business practices.

We will be evaluating the impact of corporate governance on employee relations, mainly in the Indian context.

The organisational framework for corporate governance initiatives in India consists of the MCA (Ministry of Corporate Affairs) and SEBI (Securities and Exchange Board of India), which monitor and regulate the corporate governance of listed companies in India through Clause 49. It is compulsory for listing companies to comply with its provisions. MCA (Ministry of Corporate Affairs) through its various appointed committees and forums, such as the NFCG (National Foundation for Corporate Governance), a not for profit trust, facilitates the exchange of experiences and ideas amongst corporate leaders, policymakers, regulators, law enforcing agencies and non-government organisations. NFCG has framed an action plan, which includes the development of good corporate governance principles on identified themes, i.e., (i) corporate governance norms for institutional investors, (ii) corporate governance norms for independent directors, and (iii) corporate governance norms for audit.

Listed companies in India are required to comply with the corporate governance requirements as specified in the Companies Act of 2013 and SEBI LODR (Listing Obligations and Disclosure Requirements) Regulations 2015. 

Significance of corporate governance for labour management partnerships

Good corporate governance has a very positive and lasting impact on overall employee relations. Some of the direct benefits that accrue due to good corporate governance are:

Long term sustainability

When companies follow good corporate governance, it becomes easier for employees to navigate the ever-changing business landscape. They become more agile in adapting to market trends, identifying risks and opportunities, and making strategic decisions. By taking a transparent and ethical approach to their operations, companies not only thrive in the present but also create a foundation for future success. Each employee dedicates themselves fully and remains associated with the company for a longer period of time. The overall employee turnover reduces significantly.

Positive corporate culture

Well defined and good corporate governance promotes transparency, accountability, fairness and a positive attitude throughout the organisation, inspiring employees to uphold the highest ethical standards. When employees see that their company values integrity and treats them with respect, they become more engaged, motivated and loyal. This leads to improved productivity, better teamwork, and a positive work environment where everyone can thrive.

Improves financial performance

It has been noticed in various companies that effective corporate governance has brought out the best in employees and they have given their contribution more than the desired roles, which has a direct impact on financial performance and shareholder value. This leads to increased profitability, sustainable growth, and enhanced shareholder value. Shareholders feel more confident in their investments when they see that the company is being managed by motivated employees with integrity and a long-term vision.

Builds employees’ trust

When companies prioritise good governance practices, they send a very powerful message to their employees – that they value transparency, accountability, and ethical decision making. As a result, employees develop a deep sense of trust, knowing that their interests are being safeguarded and their voices are being heard.

Employees positive social impact

Companies that are run under good corporate governance have employees who actively engage with communities and contribute to social causes. Through their close association with societal needs, they become agents of change and help in building a progressive society. These employees become responsible corporate citizens.

There have been numerous examples in the Indian context where poor corporate governance has resulted in employees working in an unethical and non-transparent manner, resulting in huge financial losses to all stakeholders. The most noticeable one was the strike and violence at the Maruti plant in Gurgaon. The company has to modify its internal policies to bring sanity to the workers associated with the union.

Challenges in corporate governance for improved employee relations 

Independence of boards

The presence of independent directors brings diverse perspectives to strengthen decision making and promote transparency within the company. However, providing genuine independence and avoiding conflicts of interest remain challenges in many companies even today.

Regulatory framework strengthening

Setting up clear and comprehensive regulations is crucial to ensuring that companies follow ethical standards and disclosure requirements and are held accountable for their actions. This framework has to be continuously evolved so that regulations are robust and ultimately benefit employees and all stakeholders.

Employee rights

Employees should be educated through a proper teaching methodology regarding good corporate governance and its benefits. It should be well articulated and each employee must have the right to know corporate governance principles and their importance.

Companies with good corporate governance 

Infosys

Believes in fostering a meritocracy where performance is recognised and rewarded. The company’s commitment to sound corporate governance and transparent disclosure norms has earned it a well earned reputation for trustworthiness. The country’s top IT talent is eager to join this company, knowing these clear fundamentals.

Here are some of the specific ways that Infosys fosters a meritocracy:

  • Performance-based compensation: Employees at Infosys are rewarded based on their individual performance rather than on factors such as seniority or tenure. This system ensures that the best performers are recognised and rewarded, and it motivates employees to excel.
  • Fair and transparent promotion process: Promotions at Infosys are based on a fair and transparent process that takes into account factors such as performance, skills, and experience. This process ensures that employees are promoted based on their merit rather than on favouritism or nepotism.
  • Open and honest communication: Infosys encourages open and honest communication between employees and managers. This culture of transparency helps to ensure that employees feel valued and respected, and it also helps to identify and address any issues that may arise.
  • Employee development: Infosys is committed to employee development, and it offers a variety of programmes and resources to help employees learn and grow. These programmes include formal training courses, on-the-job training, and mentoring programmes.

Tata model

All Tata companies place great emphasis on ethics, integrity and accountability. The Tata Group’s commitment to ethical practices, social responsibility and long term sustainability has made it a role model for many aspirants to become its proud employees.

Furthermore, the company’s unwavering dedication to sound corporate governance practices and transparent disclosure norms has earned it a well-deserved reputation for trustworthiness and integrity. This commitment is reflected in the company’s transparent financial reporting, ethical business practices, and adherence to regulatory requirements. As a result, the company has gained the trust and confidence of investors, shareholders, and other stakeholders.

This strong foundation of meritocracy and transparency has made the company a magnet for the country’s top IT talent. Aspiring professionals are drawn to the organisation, recognising the clear and solid fundamentals that guide its operations. They understand that by joining this company, they will be part of a dynamic and high-performing team where their skills and contributions will be valued and rewarded.

In essence, the company’s commitment to meritocracy, sound corporate governance, and transparent disclosure norms has not only fostered a positive work environment but also positioned it as an employer of choice within the IT industry.

Mahindra model

This company places strong emphasis on the empowerment of employees and all its stakeholders. Mahindra believes that nurturing and empowering its people leads to overall organisational success. Mahindra believes that nurturing and empowering its people is vital for several reasons:

  • Increased engagement and motivation: When employees feel empowered, they are more engaged in their work and motivated to excel. Empowerment gives them a sense of ownership and responsibility, which fosters a positive work environment and enhances productivity.
  • Innovation and creativity: Empowered employees are more likely to think creatively and come up with innovative ideas. They feel comfortable taking calculated risks and experimenting with new approaches, which can lead to groundbreaking products, services, and solutions.
  • Improved decision-making: Empowerment enables employees to make decisions at their level, reducing the need for excessive bureaucracy and bottlenecks. This agility allows Mahindra to respond quickly to market changes and capitalise on opportunities.
  • Enhanced job satisfaction: Empowered employees experience higher levels of job satisfaction and fulfilment. They feel valued and respected, which boosts their morale and overall well-being. This positive atmosphere contributes to a strong employer brand and increased employee retention.
  • Stronger organisational culture: The empowerment of employees fosters a culture of trust, transparency, and collaboration. Employees feel connected to the company’s vision and values, which leads to a stronger sense of belonging and commitment.

To achieve these benefits, Mahindra implements various practices that empower its employees:

  • Decentralised decision-making: Mahindra delegated decision-making authority to employees at all levels. This autonomy allows them to take ownership of their work and make decisions that align with the company’s goals.
  • Continuous learning and development: Mahindra invests in the continuous learning and development of its employees. Through training programmes, workshops, and mentorship opportunities, employees are equipped with the skills and knowledge they need to excel in their roles.

Findings

The implementation of good corporate governance practices has a significant impact on employees within an organisation. Here are some key findings and their expanded explanations.

Proper responsibilities allocation

Effective corporate governance ensures that roles and responsibilities are clearly defined and assigned to the appropriate individuals. This clarity enhances employee understanding of their specific duties and promotes accountability. When employees know exactly what is expected of them, they can work more efficiently and effectively, leading to improved overall performance.

Streamlined working structure and practices

Good corporate governance establishes a well-structured and systematic working environment. Clearly outlined processes, communication channels, and decision-making frameworks enable employees to navigate the organisation smoothly. Streamlined practices reduce confusion, delays, and frustrations, fostering a positive and productive work atmosphere.

Effective risk identification and management

Robust corporate governance mechanisms identify and address potential risks proactively. Employees benefit from this risk management approach as it creates a safer and more secure work environment. When risks are effectively managed, employees can focus on their tasks without undue stress or concern, leading to increased job satisfaction and reduced turnover rates.

Enhanced decision-making ability

One of the most critical aspects of good corporate governance from an employee’s perspective is the ability to participate in decision-making processes. When employees have a say in matters that affect their work and the organisation as a whole, they feel valued and motivated. This inclusive approach fosters a sense of ownership, leading to more engaged and proactive employees.

By implementing good corporate governance practices, organisations create an environment that supports and empowers employees. Clear responsibilities, streamlined structures, effective risk management, and inclusive decision-making contribute to increased employee satisfaction, productivity, and overall organisational success.

Conclusion

As we conclude our analysis of corporate governance and employee relationships in the Indian corporate sector, it’s time for all of us to realise that effective corporate governance is not a choice but a necessity in the current dynamic corporate world. It creates progress in companies, attracting employees who value ethical conduct and responsible decision making. Moreover, it plays a crucial role in shaping the nation’s economic landscape, employment and social responsibility. Corporate governance has a very positive impact on employee efficiency. Decision making abilities of employees receive a boost where corporate governance structures exist. Employees therefore feel empowered in the organisation. 

References

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