What is Value creation and Good Corporate Governance?

Català: Michael Porter. Česky: Michael Porter....A fortnight ago I attended the CII ITC’s Sustainability Summit but was unable to write on some of the key topics, like how a good corporate governance structure can create both societal as well as business value in the long run. So, here’s a brief run-up on that.

Setting the tone…

YC Deveshwar, Chairman of ITC believes that…

…in less than 30 years we will hand over a barren planet to the next generation – unless we as corporations play our part by creating both shareholder and stakeholder value.

Bhaskar Chatterjee of Indian Institute of Corporate Affairs takes it a step forward by defining what values, which values and for whom those values get created. And Minister for Corporate Affairs, V.Moily believes that the day is not far when care for the triple bottomline will be practiced as good corporate governance by all companies.

Who are the do-ers?

Next week Monday, I am attending another session organized by FICCI and Nestle – Creating Shared Value Forum 2012. Needless to say, these concepts are gaining ground within the Indian context.

These are good thoughts to have but most unlikely to be practiced by the majority of Indian businesses. While companies like ITC, Nestle, Walmart, GE, Tata, etc have been practicing such paradigm change in their business models, and do consider it to be as one of their core business philosophies, most of the small to medium sized businesses are yet to grasp this concept, at best looking at from the sidelines.

But, let’s just say that it’s the responisbility of the businesses that are in leadership position, to affect change down their humungous supply chains, because these are the very companies who in the past have systematically overlooked the cost of environmental degradation and social inequity by externalizing their costs – Why? Simply, because these things were not defined in their value creation models.

And now these external costs are coming back to take its revenge on the society (Super storm Sandy, for example)

Also read How to Reinvent Capitalism via Creating Shared Value?

But now times are changing, albiet a bit slow. The increasing focus of companies to look at all the 3 triple bottom line areas – financial, environmental and social and the need to rate the companies in these areas and also communicating the same rating to the consumer is where the new value lies. But many still believe that this may cause a simple tick mark exercise for companies to do as there is no reward associated with it. So, the disussion is now on developing a mechanism that rewards such ratings.

And for this to happen, new methods, new approaches, new metrics have to be invented.

The ground-breaking works of Michael Porter and Mark Kramer in CSR and creating societal value by creating business value are making inroads in the Indian mindset.

What’s happening?

For example, ITC’s paper business has developed new R&D methods for producing pulp so new forests could be made and then weigh in the benefits of growing tress v/s building a mill – top soil remains intact, carbon sequestration takes place, many more new jobs created. So by choosing you business model you can create impact.

Another example is that of Agarbatti rolling wherein 85% of Vietnamese sticks are exported to India while this sector remains a small scale in India. So a company can take this to a bigger level.

In a nutshell, any company, through out its value chain can generate new value and new business models that is good for the environment and society and the financial bottomline.

Shareholder value has to be created with societal value – both need to be going hand-in-hand.

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