Corporate Governance: Indian Scenario

Introduction

In India, Corporate Governance strategies are based upon two modalities, “The Ministry of Corporate Affairs (MCA)” and the “Securities and Exchange Board of India (SEBI).” By virtue of Clause 49, SEBI can authorize its power over the Corporate Governance of several Indian companies. All the companies must conform to the requirements listed by SEBI otherwise there will be repercussions of the same. The function of MCA is to make the companies feel at ease so that they can discuss beliefs and notions among each other for an overall holistic growth.

In the words of “Cadbury Committee”, corporate governance refers to that system which governs the functioning of the company. “Tricker” on the other hand believes that corporate governance is a set of rules laying down the manner in which the top management and the employees communicate and interact.

The urgency for a proper corporate governance evolved after several incidents of corporate scams. In the case of B. Ramalinga Raju v. The State, represented by CBI, huge amount of money was disposed of by the company’s managerial personnel. The case was given to CBI for investigation and 11 members including the present appellant was convicted under several charges. In another case of Ketan Parekh v. SEBI, a person was charged with the offense of controlling the security prices arbitrarily. The court stipulated a time period up to which the person shall not be allowed to engage in any stock markets. All these scams were highly condemned by the shareholders and people across the nation called for better corporate governance structure.

A company with a well-defined corporate governance strategy always gets an upper hand over the others. The directors and shareholders always favour those companies which has better market standing and reputation. Further, before investing in a particular company, the foreign investors always look for the company’s corporate governance strategies.

There are no boundaries as to the operation of corporate governance. It has a variety of functions linked to different sectors. It allows the company to go out of its comfort zone and adapt itself to other roles. For example, it enables the Board of Directors handle the managerial works apart from restricting itself to regulatory functions. Further, it allows the employees to participate in the company’s dealings other than the normal daily work. The decision rests upon the corporation to choose the best suited governance strategy to meet its goals. The governance must be such that it will make the organization’s activities flexible and will inculcate a sense of togetherness among the individuals.

Transparency and answerability are two important checklist of corporate governance. Transparency allows the shareholders to carefully analyse the company’s annual statements and decide whether or not to engage in any dealings with it. Answerability helps in resolving internal disputes faster. However, in India, there is a missing of both these aspects. Indian companies give more importance to short term interests than prioritising the ones in long run.

Considering the above mentioned points, it appears that there already existed a number of irregularities and corporate governance was introduced with the aim of ending the inconsistencies. The next chapters will give a detailed overview of how social media has impacted the corporate governance strategies in India.

Body

Social media can act as one of the most important instrument in business growth and modernization since, out of 80% of the world’s population, 40 billion people are socially active on the internet. If the company resort to proper mechanism of social networking, then it can easily flourish and survive in the long run. The importance of social networking is not just limited to a particular sector of business organization; it is pervading in all the departments and among all members in the hierarchy.

• Board of directors

In the present time, companies are always looking for new techniques and methods to grow and diversify itself. Such techniques enable the company to think out of the box and reframe its plans and strategies.

Within a company, different departments have different modes of utilizing social media. Board of Directors being one of the essential part of a company has the duty of facilitating the company’s business operation. In the case of Bates v. Standard Land Co., the court observed that most of the important decisions of the company are taken by the BOD.

By closely monitoring the social activities of the company, the Board can determine the nature and kind of data extracted by the company from social media and the manner in which it is used. This will not only help in proper use of social media but will also reveal the social strategies adapted by the company’s stakeholders. Directors can also use social media as a ground for communicating with its internal and external members.

• Auditing committee

The basic responsibility given to the auditing committees is to maintain the accounting statements of the company to the best of its accuracy. However, the job of the auditing department is not just limited to this particular function. With increasing number of “likes” and “comments” on various social media posts, the auditing committee can also do a screening of these posts so as to ensure its genuineness.

If at any time, there arises a short of manpower in the role of auditors then the same can be filled by recruiting more members in the committee. Social media allows the team to constantly stay in touch with the potential employees by advertising and networking.

• Employees

Company’s growth depends largely upon the well-being of its employees. If the employees co-operate with the business initiatives, then only it can succeed and survive in the long run. However, misuse of the social platforms by the employees can lead to an adverse effect in the prestige and position of the company. Constant governance must be done in checking the social media activities of the employees and to take actions against those who hamper the status of the company.

• Goverment

Both Central and State legislature have enacted various statutes and legislations to govern the activities of the companies. However, matters relating to corporate governance are hardly discussed in the existing laws. If the activities of the company are monitored on social media, then the government can ascertain their negative approach and thereby amend the existing laws in it. The government can also take timely action to reduce the malpractices or bring stricter laws to prevent its occurring.

• Stakeholders

Social media provides a variety of opportunities to reach and contact the company’s stakeholders. Previously, after advertising a certain item on the company’s website, it had to wait for months to analyse the response. Social networking allows the company to assess the regular visits and number of views on its post without any extra effort. Features like “news subscriptions” and “query handling” helps in keeping a check upon the interested stakeholders.

Apart from the above-mentioned strategies, social media also helps in channelizing messages as per the necessity of the community and thereby build a strong relationship. The costs involved in adapting to social media is much lesser than the actual gain. Further, if the social networking policies are properly implemented then the risks can also be controlled.

Although there are many positive impacts of social media on corporate governance, improper implementation of the same might lead to harmful damages in business affairs. It is not necessary for the members to study each and every details of social networking. All they need is to understand its effect in the business operations. Negligence on the part of company might reveal several confidential information to the competitors. The employees must be cautious before posting or commenting something on the company’s website. The comments published by an employee on leave or an intern must also be reviewed and scrutinized from time to time.

The following points will further elaborate the barriers caused by social media in corporate governance strategies:

• Managerial liability

There may arise situations when the customers, employees or stakeholders take up the social platform to express their thoughts and opinion about the company. The aggrieved party may also file a suit against the company. This increases the liability of the Board of Directors. In the case of Sunil Bharti Mittal v. CBI, it was observed that directors can be made liable if their intention in committing the crime can be proved in the court of law. Thus, the Board must frame proper strategies to make the most of social networking without being subject to any wrongful accusations.

• Internal unions

Another challenge that social media can bring into corporate governance is the formation of informal groups or internal unions. These unions are basically a cluster of people having similar thoughts and understanding. The company must tackle these people with diligence as any matter posted by the company on social media is visible to people across the globe.

• Whistler blower

Whistle blower refers to that person who has knowledge about the internal affairs of the company. These people generally inform the public or the Government about the unlawful activities of the company. In the case of Manoj H. Mishra v. Union of India, the court observed that a whistle blower must have the motive of exposing the company’s bad image in the eyes of the public.

With the rapid growth of social media, whistle blowers now have the option of releasing vital information about the company in its websites or facebook pages. Such revelations not only cause reputational damage but also brings a number of lawsuit against the company. In the case of Michael DeKort v. Integrated Coast Guard Systems, an American engineer named Michael DeKort shared a video on YouTube regarding the affairs of his company. The act disclosed the malpractices adopted by his company. The video soon got viral and reached the higher officials as a result of which, the company suffered serious damages.

Delloitte and Touche LLP has interviewed a group of people regarding the impact of social media on corporate governance. The finding states that “social media” is one of the biggest risk in business strategies since it can either make or break the company’s goodwill in minutes. Apart from the mentioned challenges, the competitors or other persons having an enmity with the company may disclose evidence against the goodwill of the company. This can cause a downfall in the company’s revenues and earnings.

In order to combat the challenges of social media, it is ideal for the company to come with a well-defined social media policy. The policy usually lays down the manner in which the online medias are to be used and the limitations to its usage. It also consists provisions setting out the penalties that the employees or stakeholders will face if they act in contrary to the mentioned guidelines. The guidelines must not be in conflict with any legal statute or human rights convention. The policy can work only inside the company and must be prepared keeping in mind the needs and requirement of the company. If at any point of time, the supervisor exercises his power of tracking the employee beyond the provided policies then it might infringe the Right to Privacy of the employee.

The company has the right to protect its data from getting stolen or misused. Although there are no direct legislation providing for data protection, the same is governed under the Information Technology Act, 2000. As per the provisions of the Act, if any person infringes the privacy rights of the company by disclosing material facts on the internet then he can be charged under the statute. Similarly, if the company reveals any personal data related to the stakeholders and employees or is unsuccessful in maintaining proper security then it can be charged under Section 43A of the IT Act, 2000.

The social media strategy must be framed in such a manner that it best suits the corporate governance of all business spheres. The following points highlight the sectors that has been governed by proper implementation of social media policies:

• Finance facilities

Several financial bodies like the U.S. Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) use social media extensively for communicating and disseminating information to its members. They improvise their social media policy again and again as per the needs and requirement of the organization.

• Energy related sectors

The companies dealing with electronic products or home based appliances often face derogatory remarks and viral videos regarding their products. However, they haven’t stopped advertising their products via social media rather they chose to improve their advertising-line and product quality along with having a social media policy to guide the corporate structure.

This chapter would highlight cases of several business houses on how they used social media as a tool for corporate governance.

• International business machines (IBM)

IBM has a number of online software created for the exclusive purpose of encouraging communication and discussion among the members. Further, it has recently developed and launched applications like Tivoli, Citizen IBM and WebSphere to build a community with consumers and listen to their needs and grievances. These initiatives were well-received by the public and were very much trending on the social media with mass attention. Further, these steps enabled IBM to formulate strategies and build an online reputation in the market.

• Lenksart & Nestle

Lenskart and Nestle has received several backlash due to inappropriate comments posted by the company. Both the companies are well-reputed in their respective categories, but due to insufficient guidelines and social media policy, the company suffered serious hamper in their financial statements and market reputation.

• Procter & Gamble

Companies are always competing with each other to grasp as much attention as possible. P & G has similarly come with a concept of “dashboard” through which, the company analyses and stores the consumer response on their tweets, posts and advertisements. After a certain period of time, the company studies the responses to infer what areas are to be improvised and how to strengthen the governance practices.

Conclusion

Companies across the world are now relying on social media for communicating and building network. Although there are numerous challenges, but after drawing a comparison between both, it can be concluded that the advantages are more in number. For decades, the communication in business has limited towards one end. It was either the company notifying its activities or the stakeholders asking for information. There were limited or no scope for asking questions or exploring more about a particular data. Internet in its true sense has given a medium for resolving these incomplete communication systems. Tesla Reg. has a well-drafted social media policy regarding matters to be communicated to the public and the business ethics. The policy also provides the limitations up to which a person is allowed to represent the company on social medias.

Now, it is not just the Board of Directors but also the employees and stakeholders who can bring new dimensions to the existing working scenario. The posts and reviews given by these related people on social media can act as an effective means for showcasing what the company actually stands for and what are its real values. However, a duty lies upon the company to assist the employees, consumers and other members regarding the utilities and problems of social media. Proper training must be given regarding the Do’s and Don’ts of a particular feature. Further, the matters posted on social media must be from appropriate source and must be posted after due permission of the concerned people.

At the completion of the study, the researcher believes that social media can positively affect the company’s corporate governance if the same is implemented in a proper manner with a proper policy. The researcher has drawn few suggestions to meet the shortcomings in social media governance.

1. The management must extend training and education to the company members for making them understand the outcome of their activities on social media. Further, the advantages and disadvantages associated with different social networking features should be elaborated for better usage.
2. Proper resources must be provided to the employees for advertisement and blogging purposes. Availability of internet, finance, computers, and other electronic gadgets must be checked from time to time as these are the means which facilitate smooth running of social media activities.
3. There must an agreement between the employer and the employee for keeping certain information as confidential. A clause must be signed wherein the employee will be bound not to disclose any private information.
4. Strict rules must be framed within the company for violation of its social media policy. The employees misusing the company’s website shall be liable to pay fine or other compensation.
5. The management must organize seminars or meetings wherein the implications of social media (both benefits and challenges) are to be communicated for co-operation and enthusiasm from its associate members.