The World Council for Corporate Governance, established last year, wants to see globalisation benefit the many, not the few. Issues of globalisation, governance, trade, poverty and sustainability are inseparable, says the Council’s president Dr. Madhav Mehra.

Globalisation will only succeed, argues Dr. Madhav Mehra, if it is inclusive. If global companies ignore the needs of poor populations, or the cause of the environment, their operations will be socially illegitimate and ultimately commercially unsustainable.

“You simply cannot have globalisation without good governance”, says Dr. Mehra. “Corporate Governance is the key to sustainable wealth creation. Governance should be seen as an instrument for social transformation, acting for the long-term benefit of all the stakeholders.

Dr. Mehra is President of the World Council for Corporate Governance (WCFCG). Headquarter in London, the Council’s main focus is in emerging and developing markets, especially India. The Council has held two major conferences in the subcontinent. Most recently, in January, the Council held its 2002 conference in Mumbai (Bombay), attracting more than 400 delegates from 18 countries.

More such events are planned. In June, the Council is organizing a sustainability programme timed to coincide the World Environment Day, with the Dalai Lama scheduled to attend. In September, a conference will be held in Delhi on the theme: ‘Corporate Governance – the key to sustainable wealth creation’.

Governance ‘in Totality’

To Mehra and the Council, issues of governance, environmental responsibility, fair trade, human rights and high labour standards are inextricable linked. Indeed, it was to pursue these issues in the round that the Council was formed in 2000.

“No one was looking at governance in totality”, says Mehra. At the 2000 conference, a “Consensus was established that a forum is required to look at these issues” and the Council was formed as a “body to bring all these things together”.

The Council’s mission statement explores the issues further. A “tectonic shift in public values has made social good a powerful competitive differentiator and, therefore, the Corporate Governance framework must encompass the issues of environmental and societal responsibility with a view to improving market capitalisation and creating sustainable wealth.

“Globalisation offers immense strength and opportunity to corporations which must be used to create a just and conflict free world to defeat the forces of terrorism and fanaticism”.

The WCFCG describes its role as “launching a worldwide movement to change the corporate culture from short termism to sustainability through good Corporate Governance practices.

Stakeholders, as well as shareholders

An exclusive focus on shareholder value as the be all and end all of corporate success doesn’t reflect the reality of value creation in the modern company, argues Mehra.

It was a flaw of governance during the 1990s bull markets, he says that shareholder value was seen as companies’ only objective, and not the by-product of running a successful business. Corporate Governance was being confined merely to complaince and disclosures , when the challenge lies in maximising value for the corporation as a whole.

The pressure to produce shareholder value “destroyed wealth on all sides”, he says, citing the disaster at Enron which cost employees and shareholders so much. The same focus destroyed value at other companies such as Marconi or Global Crossing. “All these scandals are driven by the fact that people had short-term goals”.

Mehra cites one study which found that employees contribute 60 percent of the value that companies generate. This contribution is seldom accounted for, despite the fact that employees can make or break a business. He asks: “Why should employees work in a company that is only shareholder oriented?”

Moving from an industrial to a knowledge economy means that “a lot more value is now created by intangibles”, says Mehra.

Key among these intangibles is company reputation. Mehra argues: “Public perception is build by the amount of social good” a company creates. He laments that corporate social good” a company creates. He laments that corporate social responsibility is so often seen by executives as a “drag on the company” when it can actually be a “competitive differentiator”, in terms of a sound reputation for making a social, as well as an economic, contribution to the countries in which they operate.

“The issue has not been properly exploited”, he says, though he notes that it is the companies that have most to lose who have been most responsive. He cites the example of Shell’s wholesale review of its stakeholder dialogue and CSR policies following the Brent Spar and Nigerian controversies. But it’s not just Big Oil that should pay attention to the business risks that a poor reputation can pose. “There are lessons for almost every company”, he argues.

He regrets that shareholders and stakeholders are seen as having an “adversarial relationship”. He says: “This conflict should never have arisen. The key issue today is to create value for everyone”.

Emerging Markets

Dr. Madhav Mehra hopes that the World Council will eventually have offices across Europe and the US, but for now its focus is mainly on emerging markets. It has head offices in London and Delhi, and satellite offices in several leading Indian satellite offices in several leading Indian cities, supported by the Indian Institute of Directors.

This local presence gives the Council a role on the ground that is lacking in other, more powerful organisations. He says: “The OECD is doing a very good job concept-wise. But where are the effects? You need to look at the grass roots. All these organisations have large budgets. But ask them were the money goes?”

There is a “tremendous need for accountability and transparency in emerging markets”. He says: “Corruption in India is a very important issue. No business based on bribery can be sustainable”.

Despite the many obstacles, he says, “Indian companies are very supportive” of push for improved governance. Indeed, “they are far more advanced than many in Europe”.

The inclusive approach to governance, he says, is strongly supported in India. The country is “is doing its best to bring the poor into the market economy”. But this approach does not mean that India, or other developing companies. Emerging markets “welcome multinationals”, he says. “They recognise that they create jobs”.

Mature markets have a key role to play in endorsing and encouraging improved governance in the developing world. Dr. Mehra is deeply critical of CalPERS’ decision to withdraw its investments for markets deemed to have poor labour standards. Engagement, he says, is always a more productive strategy than exclusion; “By doing this, they are penalising people not politicians. There are many ways they could exercise pressure. They need to blacklist companies, not markets. Boycotting is the last resort”.

CAN there be a convergence of corporate and public governance? This question reflects the core of a discussion that is being masterminded by Dr. Madhav Mehra, President of World Council for Corporate Governance, on a national scale

http://madhavmehra.com/dr-madhav-mehra/press6.htm

The Hindu, Bangalore, Friday, August 17, 2001

http://madhavmehra.com/dr-madhav-mehra/press4.htm

With decision makers in the corporate sector getting embroiled in controversies, fear and scepticism reigns the stock market and business channels. Ensuring transparency and quality of corporate governance, according to Dr Madhav Mehra, international management expert and chairman of World Quality Council, is the only hope to rid the corporate sector of the crisis and regain lost confidence. In the interview with Tarun Narayan, Dr Mehra spells out some of the challenges, solutions and initiatives that business establishments would need to undertake to enforce a wholesome corporate governance mechanism. Excerpts:

In India what are the factors acting as deterrents against enforcing corporate governance?

There is a lack of strong-willed legislation to convict those corporate professionals from the top hierarchy who are accused of malafide indulgence, like insider trading. The laxity in implementing strong legislative strictures or punishments acts as a major deterrent. In advanced western nations, chairmen and other top-level officials, if caught in the act of indulging in insider trading, get convicted and even face rigorous imprisonment. Sadly, in India, we do not have such a precedent. The corporate establishments themselves are not proactive enough to institutionalise a complete and flawless system of business functioning leading to good corporate practices.

What are the major implications that corporates and economy suffer from as a consequence of non-enforcement of transparency?

There is a flight of capital and investments to Southeast Asian nations. Foreign investors are no longer fun ding their way into Indian corporates due to the lacklustre image and lack of credibility of some of the Indian corporates and financial institutions. The stock market has gone into depression with bourses consistently registering all-time low since the past few months. The confidence of the ordinary shareholders, too, has been dwindling by the day.

With structural limitations how can an effective corporate governance concept be implemented?

There is no paucity of judiciary provisions to castigate the offenders and usher accountability in corporate functioning. It is just that the provisions are not being implemented with the much needed resolve and speed. Hence, applying legal solutions to take the crisis to its logical destination would be one major solution. Second, corporates themselves need to wake up to the efficacy that value systems, like probity accountability, honesty and integrity holds, to ensure a transparent a smoothly-run business enterprise. They should realise that a corporate not just accountable to the shareholders but also t o employees, customers, suppliers and lenders. The need to bring into action a collectively participatory system where each if the mentioned organs feels a sense of belonging towards the organisation. This would facilitate a genuine contribution from the multiple communities directly or indirectly linked wit the business operations. They would lead to progress in the business, optimism in the market and rise in GDP due to higher production and income and thereby a macroeconomic progress in its integrated finality.

What modus operanti do you suggest to involve employees as part of the decision making process.

The directors and the other honchos of the company should not underestimate the capabilities of the employees when it comes to the decision making process. In the same vein. It is also important that the employees are sensitised to the boundaries that they should not transcend. There should be a single minded and clear communication to all the employees across hierarchies of the business and social objectives that the company is planning to execute. This would make all the employees not just focus on the jobs but also assist organisation in embarking on rational decision making initiatives.

Quality Guru Dr Madhav Mehra, president of India’s Institute of Directors, and chairman-elect of the World Quality Council, says India is undergoing a revolution in its quality standards, with Britain in a strong position to help

In 1990 just one Indian company had won the universally recognised ISO 9000 quality management standards. By the end of last year 1,200 companies were ISO 9000 accredited, and by the end of this year around 3,000 will have qualified for the standard. It is anticipated that there will be around 15,000 Indian ISO 9000 rated organisations by the new millennium.

This revolution in standards is in some part down to the work of Dr Madhav Mehra, a former Indian government official, who over the past three decades has been involved with quality activities and institutions, and is himself recognised as a pioneer in quality management.

Dr Mehra, who was born in India, and now has homes in both India and the UK, first came to Britain in 1960′s, where he studied for a PhD in Management by Objectives at the University of London. He went on to become director in the Ministry of Indian Railways, and taught both quantitive and behavioural management at schools in both India and internationally.

In 1974 he was back in London where he founded Quality Management International, the world’s first quality consultancy on Total Quality Management and ISO 9000. Now, after more than 20 years of commitment to quality issues, Dr Mehra sees himself as chairman-elect of the new World Quality Council, which was officially formed at the 50th Annual Quality Congress of the Americann Society for Quality Control held in Chicago in May. full article

“India’s first international quality guru’, Madhav Mehra has a full agenda – encouraging the quality movement in the country while ensuring that it does not degenerate into meaningless claims.

Self-proclaimed quality gurus are a dime a dozen. And with their continuous attempts at one-upmanship, these showmen often steal the limelight from the real issues. Which is why people such as Dr Madhav Mehra are such a relief. If he is considered a pioneer of the quality movement in India and “India’s first international quality guru”, it is because his emphases on competitive awards and quality audit have given quality the palpability that must base any definition or appraisal.

This ‘guru of substance’ has a long list of titles to his name: president of India’s Institute of Directors (IOD), chairman of the UK-based NQA Quality Systems Registrar and chairman of the Worldwide Quality Management Network (WQMN). Furfther, he has the distinction of having set up the first-ever quality company, Quality Management International, in the UK in 1974.

Mehra’s first rendezvous with quality was way back in 1970s as joint director of the efficiency bureau of the Indian Railways. However, after a stint abroad, during which he completed his doctorate in management by objective (MBO), he decided to take a full-time plunge into quality.

The IOD was set up in 1990. It is a registered non-profit apex body of directors promoting the cause of quality in the country. The executive council includes such stalwarts as K Chhugh, Dr D K Modi and Pankaj Munjal. Mehra feels that the organisation was the answer to a pressing need: “There was a vacuum in India as we had no organisation focused on improving quality.” Since his inception, the institute was involved in setting up quality clubs, publishing periodic journals and holding seminars and courses on quality. At present, the IOD has 1,500 members. Membership fees are low (between Rs750-1,800 per annum) and financial support is provided by seminars which bring in about Rs17,000per delegate.

Among IOD’s major accomplishments is the annual World Congress on Total Quality. Five have already been held in India. The idea is to invite quality experts from various countries to discuss major issues in quality. Mehra explains, “Until now, there have been many people with many views on quality. Never was there any pooling of resources.” He feels that a joint approach to quality is especially suited to developing countries such as India. “There is no point in reinventing the wheel. We should use the knowledge already available with us and avoid confining ourselves to the views of one particular guru.”

According to Mehra, engendering a competitive spirit is the best way to promote quality in corporate India. Accordingly, IOD has instituted two awards, one for quality and the other for training – “The best way to achieve quality is to make companies compete for it.”

The quality award, set up in 1991, is known as the “Golden Peacock National Quality Award”. On the lines of the Malcolm Baldrige Award in the USA, it is based on the following criteria (in order of decreasing weightage): customer satisfaction, human resource utilisation, competitive benchmarking, organisational leadership, strategic quality assurance and suppliers quality progress. A committee of judges shortlists finalists and visits them to collect critical inputs. Previous winners include Kirloskar Brothers, Kirloskar Electric, Telco and Philips.

Mehra feels training should be separated from quality – thus the concept of a distinct training award. This may seem to militate against the idea of TQM. After all, isn’t training supposed to be means towards TQM rather than an end in itself? Mehra argues: “I may take a holistic view of total quality but others tend to think that quality is no more than an ISO certification. Hence, the need to look at training separately.

The true purpose of corporate governance is to get rid of the groupthink and cosiness by disrupting the status quo. This is also a starting point for companies to be more competitive. It is so simple to achieve but underpinning corporate governance with principles calls for a 180 degree shift in the way we view corporate governance. Regulators like us to perceive corporate governance as a set of rules. Rules trigger defiance. Deep down each one of us there is a desire to beat the system, transcend the rules and become a master. Why not turn corporate governance into principles?

Appointing and developing directors of independent mind , maximising diversity in the boardroom, encouraging dialogue, valuing dissent, building trust through full and timely disclosures and dispersal of authority by separation of roles at the top, are principles that need to be enshrined and cannot be compromised. The focus should be on developing and delivering training programmes for directors that enable them to use their minds independently, question board agenda, learn the art of dissent, encourage dialogue, and structure board meetings in away that permits no hold barred discussions.

The way diversity and disclosures drive value in today’s world could not be imagined by a native of industrial society. In today’s interconnected economy knowledge is capital. Diversity enhances capital between the engaging parties. It is the font head of all innovation. Sharing of knowledge between diverse parties increases knowledge of both parties. The degree of increase depends on the degree of diversity.

It is a shame that even in this day and age gender balance is treated as a favour to “weaker sex” instead of value enhancer in its own right . This fortunately is not true of the really innovative and visionary companies. Xerox has women as CEO and chairmen women. Ann Mulcahy, the chairman is also black.

Gender imbalance is an important area for correction. 20%f FTSE100 is all male. There is no Black British female director in FTSE 100 companies. There are only 8 ethnic minority women directors in FTSE 100 companies.

Britain today has just 11.7% women on its boards. During the past 10 years UK’s record of women in boardrooms has improved merely by 5%.to 11.7%. Meanwhile women’s representation as leaders of Norwegian business has risen from 6% to 44%. Rest of the Europe is moving equally fast in the same direction. .

With the current rate of change in composition UK Boardrooms will take 73 years to correct gender balance despite increasing evidence that women at the top are outperforming men from companies. Indra Nooyi, Chairman, PepsiCo, Betsy Holden, Co-CEO, Kraft Foods; Meg Whitman, President and CEO, eBay; and Andrea Jung, Chairman and CEO, Avon Products, Chanda Kochhar of ICICI and Kalpana Morparia of J P Morgan are shining examples of what gender diversity can do to companies in both West and in India.

Because of the possible embarrassment, awkwardness and bewilderment resulting from transparency, the transformational potential of unleashing the power of transparency has been grossly underestimated. Apart from helping to access capital, transparency improves decision making, drops transaction costs, evaporates boundaries of class, caste or creed, builds employee morale, inspires commitment, confidence, courage, collaboration, creativity, competence & improves competitiveness by building market goodwill.

With such formidable promise delivered by transparency, it is time we stitched programmes to introduce companywide transparency, learn the art of handling failures and wearing our embarrassments in full view of public like badges of honour.