Building Compliance Culture
The key three-letter word all over the corporate sector today is Environment, Social and Governance (ESG) which will be under the spotlight as all CEOs are tasked by multiple stakeholders to be mindful of their commitment to carbon neutrality, going green, having strong diversity and inclusion policies and allocations towards social good...
"The key three-letter word all over the corporate sector today is Environment, Social and Governance (ESG)"
Speaking on compliance at the annual summit of Legasis, one of India’s leading law firms, I was reminded of a conversation I had with Ashok Sethi, a veteran market research professional. He has been living in China for over a decade and understands that culture exceedingly well. He mentioned that the way to understand the difference in psyche between a Westerner, an Indian and a Chinese was just to observe signs. For instance, the sign in the washroom of many airline toilets in the West would say, “Please do not throw paper into the toilet”. In India it would be tightened to “throwing paper into the toilet is an offence”, while in China the sign would read “Throwing paper into the toilet is punishable by a fine of 100 Yuan.” This reluctance to comply unless there is a warning or punishment in Asian cultures can be seen everywhere.
Compliance of course goes way beyond how we behave as a society and the key topic that we discussed at the summit was naturally the corporate view of compliance. Our country has come a long way since the early “License raj” companies that apparently found many dubious ways to get permits and manage their factories and offices. Fine institutions like SEBI, the Reserve Bank of India and the Ministry of Corporate Affairs have ensured that all publicly listed companies have well drafted Acts, laws to follow, and severe penalties for crossing the line. As a member of the Central Board of the State Bank of India, I have seen first-hand, excellent supervision and vigilance by the regulators and in global firms like Honeywell for whom I am Chairman of the Board at Honeywell Automation India Limited, the commitment to compliance is truly exemplary.
Naysayers may point to historic frauds like Satyam, whose founder all took India’s most successful industry sector down with his company. Thanks to the good work by the Government, NASSCOM, a white knight in the form of Anand Mahindra and lots of behind-the-scenes action and on the front lines with customers by many of us that pulled that situation out of its morass.
The key three-letter word all over the corporate sector today is Environment, Social and Governance (ESG) which will be under the spotlight as all CEOs are tasked by multiple stakeholders to be mindful of their commitment to carbon neutrality, going green, having strong diversity and inclusion policies and allocations towards social good. I recall when the Government first suggested the two percent plan whereby companies would have to spend two percent of the average of the past three years’ profits on social responsibility there were squeals from many quarters but many of us supported the idea. Visionary firms would do more than that anyway but bringing other stragglers to the party and having strong, Board Committees that ensured there was genuine application of those funds has done significant benefit to various causes like gender equality, education and employment skills and environment improvement in India.
As China slows down to a growth rate of three to four decade in this decade and India hopefully is able to sustain a seven to eight percent growth, there will be many opportunities for established firms as well as new entrepreneurs to seek to expand and capitalise on the growth way. As one wise man said in the recent boom and near bust cycle of various e-commerce platforms, at the end of the day, beyond all the hype, market value is just vanity, revenue and profits are sanity and cash coming in is reality. Whether it is ESG or conformance to a string ethical and legal code, conformance will surely separate the successful companies from the also-rans.
It is also interesting to see how much our wilful disobedience of compliance in society has eroded through the years. When I look at the discipline with which my own in laws, SV Iyer at the age of 91 and Lakshmi at the age of 89 conduct their lives as law abiding citizens; it heightens the contrasts between the random paths chosen by two wheeler riders across the city of Pune and even the willingness to treat everybody else’s space as a trash bin.
One must admit that the Swacch movement in the country has led to some control on the tendencies to create a mess across beaches, parks and streets but there is still a long way to go before most Asians truly start practising a life of compliance and concern for the environment and fellow humans. One more target for our country to achieve by the time we reach our hundredth birthday as an independent nation.