Broad Based Recovery with Contribution from all Sectors Reassures Economic Momentum Has Strong Foundations: FM 

Emphasizes Need to Increase Investment in Infrastructure and Improvement in Education and Health of People to Make Growth Process More Inclusive and Sustainable

Quality of Governance, Integrity and Ethics of Managers Ensure Sustainability of a Business Enterprise: FM

India has successfully weathered one of the worst global economic crises and the GDP figures for the second quarter of 2010-11 reassure us that the green shoots are turning into welcome dense foliage. This was stated by the Union Finance Minister Shri Pranab Mukherjee while addressing at the 10th Institute of Company Secretaries of India (ICSI) National Award for Excellence in Corporate Governance 2010 function, here today. A broad based recovery with contribution from all sectors of the economy, including agriculture, reassures that the economic momentum has strong foundations. There has been a significant increase in the economy's capacity to absorb shocks, domestic as well as external, without significant disruption or dislocation. Even as market sentiments in most advanced economies continue to be pessimistic, India has attracted global investors with vigour, said Shri Mukherjee. He emphasized the need to enhance investment in infrastructure and accelerate improvements in education and health of the people to make the growth process more inclusive and sustainable.

Shri Mukherjee emphasized that sustainability of a business enterprise depends on the quality of governance and integrity and ethics of its managers and exhorted the corporate India to introspect and understand that better governance standards cannot be ensured just by tightening the Codes or by increasing the frequency of disclosures. Companies need to embed good governance as part of their business strategy to achieve their core objectives, said the Minister. 

Highlighting the need for self-regulation, Shri Mukherjee said that ethics and governance are the two brakes which should self-activate before an enterprise succumbs to a vicious cycle of ambition, greed and complacency. 

Congratulating the award recipients, the Minister said that the Business Leaders are change agents and their contributions to the society need to be recognised holistically and rewarded. It is the result of long years of hard work by keeping the society at the centre of their business plans. While it motivates others it places a still greater responsibility on these recipient leaders in carrying on their work and building more and better institutions for the benefit of our country, he added. 

The text of Finance Minister's address is as follows: 

"It is my pleasure to be here today at this function to present the national award for excellence in corporate governance. Let me start by complimenting the Institute for organising this function and the award winners for their efforts. I would like to share some thoughts with you on this occasion. 

India, as you are aware, has successfully weathered one of the worst global economic crises since the Great Depression. The GDP figures for the second quarter of 2010-11 reassure us that the green shoots are turning into welcome dense foliage. A broad based recovery with contribution from all sectors of the economy, including agriculture, reassures that the economic momentum has strong foundations. Even as market sentiments in most advanced economies continue to be pessimistic, India has attracted global investors with vigour. 

India's economy has undergone rapid changes over the past two decades. There has been a significant increase in the economy's capacity to absorb shocks, domestic as well as external, without significant disruption or dislocation. The economic reforms have unleashed a new era of entrepreneurial initiative. I appreciate their competitive spirit and efforts to look beyond our borders. I am sure their global ventures would be well rewarded. We need to accelerate this momentum through a combination of timely policies and governance mechanisms. We need to enhance investment, rapidly improve our infrastructure and accelerate improvements in education and health of the people to make the growth process more inclusive and sustainable. 

I am sure you will all agree that the key to running a responsible business enterprise is to have a proper corporate governance mechanism in place. In fact, the sustainability of a business enterprise depends on the quality of governance and integrity and ethics of its managers. Corporate India needs to introspect and understand that better governance standards cannot be ensured just by tightening the Codes or by increasing the frequency of disclosures. Laws and codes are written with the expectation that they will be complied in letter and spirit. While laws can prescribe mode of appointment, qualifications, role and responsibilities of independent directors, they cannot determine the quality of their engagement in the Board. The post of an independent director cannot be seen as an ornamental post or a superannuation perk. Companies need to embed good governance as part of their business strategy to achieve their core objectives. 

For instance, the diverse complex business transactions between a company and its managers, or principal owners or directors which are referred to as related party transactions, are not all abusive. However when private interests of individuals influence their public decisions, it severely compromises the company's ability to enter into fair contracts which may be to the detriment of non-controlling shareholders. This can also adversely affect the larger set of stakeholders. 

No system is immune to abuse or fraud. There has to be a felt need for self-regulation. There must be brakes which will self-activate before an enterprise succumbs to a vicious cycle of ambition, greed and complacency. Ethics and governance are two such brakes. The current focus on the role of the Boards and their independent directors is the result of corporate failure and corporate governance scandals in many parts of the world. The fact that the subprime crisis took place despite the stringent Sarbanes Oxley Act of USA shows that it is difficult to legislate against bad corporate decision making unless all stakeholders are willing partners. There are fine examples of companies in India which have followed corporate governance practices long before they were even mandated. They have been able to build sustainable and successful business models which continue to provide leadership with trust. 

Today the corporate governance debate is moving from the effects of bad governance on minority shareholders to the effect on all stakeholders. This is becoming an increasingly critical issue as global business integrates the world more closely than ever before. A company needs to balance the interests of different stakeholders. For instance, this recession was caused by a mispricing of risk leading to excessive leverage and high prices for a wide range of assets. It is no longer farfetched to say that every craftsman or textile worker laid off from the diamond cutting shops of Gujarat or garment factories of Tirupur can trace her job loss to slowdown in global demand precipitated by decisions of investment bankers in the west. We must understand that these innocent bystanders did not have ready rescue boats, but they had to be supported. 

We have about a million companies in our country. Some of them are very big figuring in the global fortune 500 list; many of them are very small. About 10,000 of them are listed and the rest are unlisted. Irrespective of whether they are listed or not, irrespective of their size, they make the nation move forward. These companies contribute immensely to the growth dynamics of our economy. They propel our manufacturing growth, expand our services and reap quantum leaps in our exports. 

These companies are driven by the vaulting ambitions and the entrepreneurial spirit of its founders and leaders. Those who go ahead and convert their organisations into institutions become the leaders and the innovators in building a dynamic society. Business Leaders are change agents and their contributions to the society need to be recognised holistically and rewarded. 

Today we have gathered here to recognise a few of them and salute them. I appreciate and congratulate ICSI in instituting these awards - the National Award for Excellence in Corporate Governance- and in identifying and appreciating the efforts of these leaders. 

Creation of organisations is not every body's job. One needs to be a visionary with a missionary zeal in building organisations. Converting them into higher-order structures called institutions requires still greater capabilities and exalted vision. Those who lead these institutions are the innovators of modern societies, enabling our people to live a better and more meaningful life by creating more jobs, generating more output and providing more incomes. These great people and the institutions they nurture exist not for themselves alone but for the larger stakeholder society. 

For them corporate social responsibility is not just an adjunct to their main business but part of their core business itself. Whatever they do is for the benefit of the society - the greatest happiness of the greatest number. When a drug manufacturing company invents, produces and sells life saving drugs at a reasonable cost to the population it is performing this noble corporate social responsibility. On the other hand, if the company tries to maximise its profit at the cost of the people it just exists for itself. 

Recipients of these Awards today will undoubtedly cherish their achievements. At the same time it will remind the rest of the society, particularly the entrepreneurs that such awards do not come easily. It is the result of long years of hard work by keeping the society at the centre of their business plans. While it motivates others it places a still greater responsibility on these recipient leaders in carrying on their work and building more and better institutions for the benefit of our country. 

I congratulate all the leaders who have gathered here. I wish the organisers of this event, ICSI the very best. I also wish the event all success."