Governance by technology: The future of corporate governance

– Pammy Jaiswal, Partner and Payal Agarwal, Senior Executive | corplaw@vinodkothari.com

‘Corporate governance’ (‘CG’) is difficult to define but easy to describe. It is understood by the principles and practices that are comprised in it, under regulations, standards and best practices. Corporate governance continues to evolve, for reasons not difficult to understand. First, companies, over time, have become immensely powerful in an ever-integrated and networked economy. Two, experience with operation of companies over time have given precedents of misuse of managerial power,  conflicts of interest, opacity in reporting, lack of balance in meeting diverse stakeholder needs, and lately, ESG concerns. Every major corporate scandal leads to a fresh thinking on corporate governance principles, which is quite understandable for an adaptive process. The key objectives of corporate governance are accountability, transparency, objectivity, responsibility, etc. Globally, the concept of CG has been explained widely, just as under the OECD Principles on Corporate Governance^[1] explains it to be ‘a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.’  Further, the UK Corporate Governance Code 2018^[2] also refers to the definition coined by the Cadbury Committee which defined the aforesaid term to mean ‘the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.’

Having said this, it becomes important to understand the prospective manner in which companies can take care of the CG requirements besides the contemporary means to comply with the same in the current time. The dynamic shift in economic situation and regulatory requirements, is likely to impel the corporate managers to think about introducing and implementing Information Technology (‘IT) driven tools and softwares and blockchain technology to meet the governance requirements in companies. Be it data protection or contract security or real time disclosure and access to certain significant corporate information both internally as well as externally, all these aspects are gradually pacing up to be included under the specified statues in India.

This write-up is directed towards unfolding the immense potential of the IT in rewriting the CG standards and norms for changing the face of it as it looks to be. We have discussed the various forms of IT based tools and use of blockchain technology for establishing higher, seamless and improvised CG practices under the Indian corporate framework where one can easily transit from human powered functions to IT based functions and softwares.

The article has been published in the August, 2022 edition of ICSI Chartered Secretary journal and can be accessed on the link here, from Page 61 onwards.

^[1] https://www.complianceonline.com/downloads/OECD-Corporate-Governance-Principles.pdf

^[2] https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f48069a2/2018-UK-Corporate-Governance-Code-FINAL.pdf