#GovernanceMatters

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A Thoughtful Board Evaluation Process for Better Governance Outcomes.

At Excellence Enablers, we offer a structured and insightful board evaluation process designed to enhance board effectiveness and accountability. Our approach to board evaluation in corporate governance goes beyond compliance, focusing on real performance improvements, strategic alignment, and individual director contributions. Through confidential assessments, peer reviews, and actionable feedback, we help boards reflect, realign, and recalibrate to meet evolving business needs.

Trust Excellence Enablers to bring clarity, objectivity, and value to your board evaluation journey.

[esgdata1992]

Why ESG Risk Ratings and ESG Impact Ratings Are Not the Same

In investment and corporate decision-making, there are growing ESG considerations; growing traction comes along with metrics like ESG Risk Ratings and ESG Impact Ratings. Although their names seem synonymous, these two concepts serve different purposes and applications. For investors, companies, and even stakeholders seeking to make decisions that align with sustainability and ethics, it is crucial to know the differences between ESG Risk Ratings and ESG Impact Ratings.

What Are ESG Risk Ratings?

ESG Risk Ratings are meant to capture a company’s risk exposure from specific ESG risks and track how this risk is being mitigated or managed. Ratings under this focus identify the potential negative impact ESG factors can have on a company’s financial performance, reputation, and the stability of operations.

Key elements of ESG Risk Ratings include:

Risk Exposure: Analyzes how exposed an organisation is to ESG-related risks given its line of business, geographies in which it operates, and business activities.

Risk Management: How effective a company is in its ESG risk management approach through policies, initiatives, and governance practices.

Materiality: Industry-specific ESG factors like carbon emissions for energy companies or labor practices for manufacturing companies that are considered material to the financial performance.

For example, a firm with high emissions but no effective climate action plan may warrant a low ESG Risk Rating as an indicator of its potential financial instability due to scrutiny from regulators or changing consumer preferences.

What Are ESG Impact Ratings?

On the other hand, ESG Impact Ratings score what contributions an organization makes to green, social, or governance goals in a positive or negative sense. Unlike ESG Risk Ratings, which measures how ESG factors are operating from the company’s angle, Impact Ratings measure how the company impacts its surroundings.

ESG Impact Ratings focus on the broader outcomes of societal and environmental impacts that result from a firm’s actions.

Important elements of ESG Impact Ratings are :

Environmental Contribution: Measures efforts to improve environmental health, such as cutting carbon emissions, enhancing biodiversity, or adopting renewable energy.

Social Impact: Evaluates contributions to societal well-being, such as promoting diversity and inclusion, supporting local communities, or driving innovation in healthcare and education.

Governance Impact: Examines the company’s fairness, transparency, and ethical practices, particularly in its decision-making processes and stakeholder engagement.

For example, a renewable energy company that significantly reduces global carbon emissions and creates green jobs would score high on ESG Impact Ratings, even if certain operational risks (such as supply chain vulnerabilities) lower its ESG Risk Rating.

The key difference between the ESG Risk Ratings and the ESG Impact Ratings is what they focus on and from which perspective. ESG Risk Ratings look inwards and assess how ESG factors impact a company’s financial and operational performance. Their strategy is to identify vulnerabilities such as regulatory risks, reputational harm or environmental liabilities and see how well the company manages these risks. It helps in gauging the downsides for the business that can be shared with investors or stakeholders about the risks associated with that particular company or industry.

On the other hand, ESG Impact Ratings are outward-looking and measure how the actions of a company contribute to broader environmental, social, and governance goals. They give insights into the positive or negative effects on society and the environment that the company has. These ratings do not focus on risks towards the company itself but on the ability of the company to drive meaningful change such as reducing carbon emissions, creating social equity, or encouraging ethical governance practices.

The concept of materiality is also another significant difference. ESG Risk Ratings give more importance to industry-specific ESG factors which are likely to significantly impact financial performance. Water usage might be critical for a beverage company, while data privacy would be more relevant for a tech firm. For that matter, ESG Impact Ratings go beyond industry-specific issues and give companies a rating based on their ability to contribute to universal ESG goals, irrespective of its industry.

ESG Risk Ratings are primarily used for risk management and compliance purposes in investment. Investors will now be able to identify companies that face financial instability because of poor ESG practices. On the other hand, ESG Impact Ratings are more tailored to sustainability reporting and impact assessments, appealing to investors and stakeholders who give more importance to positive societal and environmental outcomes and less significance to the mitigation of financial risks.

And thus, an understanding of these differences is essential so that stakeholders apply the correct framework based on the objective of minimizing risks or maximizing positive impact.

Investors Using Such Ratings Of course, ESG Risk Ratings and ESG Impact Ratings both feature significantly in the investment strategy. However, both serve different purposes.

ESG Risk Ratings are highly useful for investors who value financial risk management. For example, an investor in a traditional energy company would use ESG Risk Ratings to understand the potential financial impact of regulatory changes or environmental lawsuits.

ESG Impact Ratings: These ratings are also appealing to socially conscious or impact-driven investors. That is, an investor who invests in a green bond or social enterprise fund may turn to Impact Ratings for the purpose of ensuring that his investments really do align with his values and contribute to measurable positive change.

Challenges and Criticisms

Despite their importance, both ESG Risk Ratings and ESG Impact Ratings face challenges, including:

Standardization: There is a lack of standard methodologies among rating agencies that could lead to conflicting information and confusion.

Data Limitation: Companies may not disclose adequate ESG data, which renders the evaluation incomplete or inconsistent.

Greenwashing: Some may exaggerate their ESG impact or downplay risks, which makes it challenging for ratings to remain objective.

Read More: ESG Risk Ratings vs ESG Impact Ratings

Conclusion

ESG Risk Ratings and ESG Impact Ratings are complementary tools, which help in different kinds of insights for a company’s ESG profile. Risk Ratings help in assessing the potential threats toward a company’s financial performance, whereas Impact Ratings are about contributions made by companies toward a sustainable and ethical future. Combining both, they empower stakeholders to make more thoughtful, balanced, and value-driven decisions.

As the world faces increasingly complex environmental and social challenges, robust ESG evaluations will become even more critical. Be it an investor, corporate leader, or policymaker, understanding the differences between ESG Risk Ratings and ESG Impact Ratings is a requisite for navigating today’s investment landscape and achieving long-term sustainability.

[top-leaders-in-india]

The Difference in Delhi is Clear: BJP vs. AAP — Col Rajyavardhan Rathore

Colonel Rajyavardhan Rathore, a leader known for his insightful perspective, has drawn attention to the clear contrasts between the BJP and AAP governments in Delhi. Highlighting governance, development, and public welfare, Rathore has underlined the key differences shaping the political and administrative landscape of the national capital.

Governance Styles: A World Apart

BJP: Known for its decisive leadership and long-term vision, the BJP focuses on robust infrastructure, national interests, and inclusive development. Its policies emphasize empowering citizens while ensuring transparency and accountability in governance.

AAP: While positioning itself as a people-first government, AAP has often been criticized for populist measures that prioritize short-term gains over sustainable growth. Allegations of mismanagement and lack of transparency have also surfaced.

Key Areas of Difference

1. Development Agenda

BJP: Focuses on infrastructural advancements such as modernizing public transportation, constructing expressways, and creating economic opportunities.

AAP: Concentrates heavily on subsidies and welfare schemes but has faced criticism for limited focus on long-term infrastructure development.

2. Education and Healthcare

BJP: Envisions holistic improvements, combining world-class facilities with skill development initiatives.

AAP: Gained initial praise for its education reforms but has been questioned about the sustainability and scalability of its efforts.

3. Urban Management

BJP: Advocates for smart city projects, clean energy, and modern urban planning to transform Delhi into a global metropolis.

AAP: Often criticized for inadequate management of pollution and waste disposal, leaving pressing urban challenges unresolved.

4. Leadership Philosophy

BJP: Strong, central leadership focusing on a collective vision for the nation.

AAP: Personality-driven governance that critics say leans heavily on one leader’s narrative.

Public Perception: Trust and Delivery

Col Rathore pointed out that while BJP’s consistent delivery of promises has earned it public trust, AAP’s approach often sparks debates over its priorities and efficiency. The people of Delhi are discerning the stark difference between rhetoric and results.

A Clear Choice

With elections and governance debates intensifying, Col Rajyavardhan Rathore’s observations provide a lens through which Delhiites can evaluate their choices. He underscores that good governance is not just about promises but about delivering tangible, sustainable change.

#BJPvsAAP #GovernanceMatters #ColRathore #DelhiPolitics

[takasande]

👏 It’s time to level up! Roadmap to Non-Executive Directorship offers you the blueprint for building an impactful board career. Perfect for aspiring #NEDs, board members, and those ready to lead with purpose! 🌎 Get your copy today! https://shorturl.at/UJIsU 📚🚀 #BoardLeadership #DirectorHandbook #GovernanceMatters

[capt-shubhendu-kumar-tiger]

Congratulations #kerala & fellow #malayalis Pull up your socks #yogiadityanath Focus on #governancematters rather than your #nonsensical #utterances https://www.instagram.com/p/B3Dbd2gnFfG/?igshid=5ku584qu7nfx

[ainamotoibaravi-blog]

catching up on Lautoka stories with these beautiful young women #RFHAFijiBoardmembers #yakaviniVakaraubuka #SRHRinfluencersAdvocates #governancematters (at Nasese, Central, Fiji) https://www.instagram.com/p/B25xkOKBl50gYTO2MQZJ2xq5nxhw6gpfaJcP700/?igshid=1t0qqvg8gmux9

[rachelbatesinteriors]

Thank you @positiveluxury @dianaverdenieto for a superb #positiveweek event this evening @6thsoho #hearst chaired by @stormykeating creative collaborator & brand ambassador with an excellent & interesting panel including #stephenwebster of @stephenwebsterjewellery @trinnywoodall @juliettadexter of @thecommsstore #laurajordan of @graziauk #rewritingthenarrative #positiveluxury #positiveweek #brandstotrust #sustainability #followthebutterfly #governance #governancematters (at 6thsoho)

[muzaffar1969]

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Governance Matters @GovernanceMatt

Rivertide Consulting retweeted:

Our pre-written 'Conflict of Interest' policy helps Board Directors understand this vital governance area https://t.co/bklaawvxdA #corpgov

June 17, 2017 at 05:29PM https://twitter.com/rivertideps/status/876053571648749568 from Rivertide Consulting https://twitter.com/rivertideps/status/876053571648749568

[excellence-12]

Your Board’s Best Kept Secret? A Thorough Evaluation!

Excellence Enablers offers top-notch Board Evaluation Services in India, helping organizations enhance their board effectiveness and governance standards. With a structured and objective approach, Excellence Enablers assesses board performance, identifies areas for improvement, and provides actionable insights. Our Board Evaluation Services ensure compliance with regulatory requirements while fostering a culture of transparency and accountability. Partner with us to elevate your board’s efficiency and drive sustainable business success.

[esgdata1992]

Current ESG Trends to Watch for 2024

ESG has become more necessary than ever for businesses and investors as the world struggles with climate change, social injustice, and global health problems. If companies embrace ESG trends in 2024, they can attain a remarkable brand reputation, gain tremendous customer loyalty, and reduce risk while contributing to a more sustainable future. Apart from financial gains, investors increasingly seek investments which are in accordance with their beliefs.

The rising significance of ESG has drastically altered how businesses and investors think about sustainability. ESG factors were once widely considered “nice-to-haves” rather than essential factors in company and investment choices. Yet, as ESG has gained popularity, businesses and investors are adopting a more comprehensive strategy, integrating ESG factors into their business plans and decision-making procedures.

This post will explore the burgeoning ESG future trends likely to influence business and investing in 2024. We will look at the most recent advancements in ESG and their effects on organizations and investors, from broadening ESG criteria to using new technologies for ESG research. Companies and investors may position themselves for long-term success while helping to create a more sustainable and fair society by staying ahead of these trends.

Read our New Blog: Role of Climate Data in Assessing Portfolio Risk

ESG Trends to Follow In 2024

1- A Data-Driven Approach to ESG

The use of data by businesses and investors to assess and manage their environmental, social, and governance (ESG) performance has become increasingly common over the last few years. In 2024, this trend is expected to continue, with a focus on data-driven ESG initiatives across a variety of industries.

Among the major forces influencing these ESG trends in 2024 are:

The Requirement for More Accurate and Reliable ESG Data: ESG data solutions are becoming increasingly important in decision-making for investors and businesses. As a result, there is now a higher need for ESG data that is more accurate and reliable.

Technology and Data Analytics Advancements: Collecting, analyzing, and reporting ESG data is now simpler due to technological and data analytics developments. This has contributed to the shift toward an ESG strategy that is data-driven.

Stakeholder and Regulatory Pressure: Investors and organizations are under growing pressure from authorities and stakeholders to report on their ESG performance and consider ESG factors when making investment choices. This has contributed to the shift toward an ESG strategy that is data-driven.

Possibilities for Enhanced Performance and Risk Administration: Companies may discover opportunities for ESG performance improvement and enhance ESG risk management by using a data-driven approach to ESG.

2- Robust Global Frameworks Promoting Transparency

The necessity for more robust global frameworks to address environmental and social issues, including climate change, socioeconomic inequality, and human rights breaches, has become more widely acknowledged in recent years. As a result, a push for more accountability and transparency has been made in several industries, including banking, corporate governance, and supply chain management.

In 2024, this pattern is anticipated to continue as stronger international frameworks are created and implemented to address these issues. Among the major forces influencing these trends in ESG are:

Greater Understanding of Social and Environmental Risks: The risks to the environment and society that the world is experiencing, such as socioeconomic inequality, climate change, and human rights breaches, are becoming more widely understood. There is a higher need for accountability and transparency to address these concerns.

Putting More Emphasis on ESG Factors: Investors have begun considering environmental, social, and governance (ESG) factors when making investment decisions as they attempt to control risk and achieve sustainability over the long term. This has provided the impetus for more transparency and sharing of data relating to ESG.

Encourages Greater Corporate Accountability: Companies are under more and more pressure to take accountability for their social and environmental repercussions and to be open and honest about their performance. This has prompted calls for increased accountability and transparency in supply chain management and corporate governance.

The Development of Global Standards and Regulations: Global standards and frameworks, such as the Paris Agreement on climate change and the United Nations Guiding Principles on Business and Human Rights, are becoming increasingly necessary to solve environmental and social concerns. In addressing these challenges, these frameworks offer a foundation for increased accountability and transparency.

Explore more: Biodiversity: The Hidden Threat to Investors

3- A Strong Push for Impact Investing

Most investors are looking to match their investments with their beliefs and social or environmental objectives, which has given rise to the movement known as impact investing. Impact investing is investing in businesses, nonprofits, or funds to achieve a measurable social or environmental effect.

As investors become more conscious of the environmental and social concerns confronting the world and strive to utilize their assets to make a positive change, impact investing has gained popularity in recent years. With a strong push for impact investment across various industries and asset classes, this ESG market trend is anticipated to continue in 2024.

Among the major forces influencing this trend are:

Growing Demand for Ethical and Sustainable Investing Choices: Investors are looking for possibilities to make investments consistent with their morals and environmental or social objectives. As a result, there is an increase in demand for ethical and sustainable investing solutions, such as impact investments.

Increasing Understanding of the Global, Social, and Environmental Concerns: The urgency of addressing global issues, including social injustice, climate change, and access to healthcare and education, is becoming more widely acknowledged. Impact investing offers a method for investors to support these initiatives while also earning profit.

Enhancing the Availability of Impact Investing Options: The variety of impact investment choices accessible to investors has increased as impact investing has grown in popularity. Among them are impacted funds, green bonds, and other investment options focusing on the social factor.

Possibility of Substantial Financial Gains: Impact investment has been proven to offer the potential for high financial returns, particularly over the long term. This has made drawing investors from a broader spectrum easier for the area.

Read More: Uncovering Hidden Risks: The Role of Value Chain Assessment in Modern Investing

4- Approaching Net-Zero Holistically:

It is becoming more apparent that a holistic strategy is required to solve the complex challenges of decarbonization as businesses and governments commit themselves to reach net-zero emissions. With this strategy, the social, economic, and environmental effects of emissions reduction initiatives are considered together with the complete lifecycle of emissions, from production through end-of-life disposal.

A comprehensive approach to this trend in ESG requires a variety of techniques and initiatives, including

Switching To Renewable Energy: Moving away from fossil fuels and toward renewable energy sources like solar, wind, and geothermal is crucial for attaining net-zero emissions. This can entail investing in infrastructure for renewable energy sources and putting regulations into place to encourage the switch to clean energy.

Decarbonizing Supply Chains: Reducing emissions across the whole supply chain is necessary to achieve net-zero emissions and decrease emissions from direct activities. This may entail collaborating with suppliers to increase sustainability standards and minimize emissions, as well as considering the carbon footprint of raw materials and transportation.

Putting in Place Carbon Trading and Pricing Mechanisms: Carbon pricing tools like carbon taxes or cap-and-trade programs can encourage businesses to invest in greener technology and promote emissions reduction.

Promoting the Circular Economy’s Principles: Reducing waste and recycling or reusing materials are critical components of a circular economy strategy to reduce production and consumption’s adverse environmental effects. Implementing policies to encourage circularity and revamping goods and processes to be more circular might be part of this.

Investment in Carbon Removal Technologies: The employment of carbon removal technologies, such as direct air capture or carbon sequestration to remove carbon dioxide from the atmosphere, may be necessary to reach net-zero emissions.

Explore More: ESG Contriversies Screening

5- Advancing Sustainability Through 5G

The introduction of 5G technology has the potential to improve sustainability initiatives in various ways. The most recent cellular network technology, 5G, provides faster speeds, reduced latency, and more capacity than earlier generations. These ESG technological trends may significantly affect sustainability in the following

Reducing Carbon Emissions and Enabling Remote Work: By enabling more widespread remote work, 5G technology can reduce everyday commuting and the corresponding carbon emissions. Also, this may aid in easing traffic congestion and enhancing urban air quality.

Enabling Smart Cities and Minimizing Resource Usage: Smart cities employ real-time data to optimize resource usage and lower waste, and 5G technology can help make this possible. Smart waste management systems, for instance, have potential to reduce the quantity of garbage dumped in landfills while reducing pollutants and traffic congestion.

Facilitating Precision Farming and Minimizing Environmental Effect: Precision agriculture, which uses real-time data to enhance agricultural yields and lessen environmental impact, can also be made possible by 5G technology. Farmers may maximize their use of water, fertilizer, and other resources, eliminating waste and having a minimal environmental impact, by employing sensors and other IoT devices connected via 5G networks.

Promoting Renewable Energy While Decreasing Reliance on Fossil Fuels: By facilitating the grid integration of more renewable sources, 5G technology can aid in the transition to renewable energy. To increase solar and wind power usage, 5G networks, for instance, can enable more effective energy storage and delivery.

Accelerating Communication and Computation: The use of 5G ensures faster communication, computation and analysis of ESG data and news, promoting up-to-date ratings and assessments as well as documentation of significant developments.

Explorer More: ESG Active Ownership 

In Conclusion,

we anticipate several new ESG trends to emerge in 2024 that will influence how businesses and investors tackle environmental, social, and governance challenges. These trends include the expansion of ESG criteria, a stronger emphasis on social issues, the inclusion of ESG in investment decisions, the advancement of sustainability through 5G, a comprehensive approach to net-zero, a strong push for impact investing, more robust international frameworks with an emphasis on transparency, and a path to ESG that is data-driven.

To stay on top of the game, companies and investors must adapt and respond as these emerging ESG trends change. They may benefit from Inrate’s ESG consulting by learning to manage these developments and creating efficient plans for handling ESG opportunities and risks. With over 30 years of experience in ESG consulting and sustainable financing, Inrate offers indispensable expertise when it comes to professional advice on ESG-related matters.

ESG factors will undoubtedly become more significant in decision-making as we progress toward a more sustainable future in various industries. Companies and investors may position themselves for long-term success and sustainability by keeping up with new ESG trends and collaborating with experienced ESG consultants like Inrate.

[excellence-12]

Joining a Board as an Independent director – A short guide to success

An Independent Director (ID) is appointed on the Board of a company to bring independent opinion and objectivity to the process of decision-making. She/he is also expected to help improve the Corporate Governance standards of the company. While there is a lot of focus on the compensation that some IDs receive, the position comes with a number of legal obligations, in addition to the possibility of reputation loss if things go wrong in the company.     A person, before accepting the position of an ID, should conduct a proper due diligence of the company. This process should be objective, to ensure that she/ he is comfortable with the expectations of the company. Before joining any Board, an ID should also ensure that she/he does not have any conflict of interest, actual or potential.     The starting point of the due diligence process should be by gathering the information about the company, as available in the public domain. This includes inter alia  

Background of the company and the industry/ sector in which it operates. 

Reputation of the company in general, and that of the promoter, if any. If it is a non-promoter company, reputation of top management and Chair of the Board.  

Board composition – From the quality of existing Directors, she/he can assess the company, and its governance culture. If any of the Directors is known to her/him, then she/he can speak with that Director. 

Information available in Annual Reports, such as the financials, as well as any legal cases with major implications, including, but not limited to, financial implications.  

Any adverse news coverage in the recent past  

 She/he can also request for interactions with the Promoter/Chairperson (or any other senior Board member), and the Managing Director/ CEO.  Interactions often give a lot of information, and provide clarity, which documents in public domain may not provide.    Post accepting the position, the ID should get a letter of appointment, which clearly states the expectations from her/him. She/he could also ask for copies of agenda/minutes of a previous meeting, copy of D&O insurance policy, or any other document that she/he requires.     Post joining the Board, the ID must insist on a structured induction programme. This should include a visit to the office, and factory, if any. The programme should also include interactions with KMPs, including the Company Secretary, and Senior Management Personnel.     Once the ID is appointed, she/he should ensure that she/he reads the agenda papers before the meeting in order to participate effectively in the meeting. The insights should be independent, and she/he must be objective in decision-making. She/he must also examine the draft minutes to see whether the discussions and decisions have been accurately captured.  

The recognition that she/he is on the Board to add value, should inform the conduct and behaviour of an ID, new or old.

Source: https://excellenceenablers.com/joining-a-board-as-an-independent-director-a-short-guide-to-success/

[excellence-12]

Enhance Governance with Board Evaluation Services – Excellence Enablers

At Excellence Enablers, we provide expert Board Evaluation Services, helping companies enhance their governance standards. Our tailored solutions assist Boards in identifying areas for improvement, ensuring compliance, and fostering transparency. Strengthen your Board’s effectiveness with our Board Evaluation Services in India today!

[excellence-12]

Strategies to overcome a dysfunctional board – How and when to use it

While it is generally assumed that Boards exist to add value, they can be value-adding, value-neutral or value-destroying. There are several reasons which could make Boards value-destroying. Some of these are

Lack of trust – When Board members do not trust one another, there is no free and frank discussion in the boardroom. This hampers the decision-making process.

Hidden agendas – If some of the Board members have hidden agendas, which do not promote the interest of the company, it leads to lack of productive Board meetings

Lack of proper processes – If Board meetings are only tick the box items, with no flow of information for Board members to discuss and deliberate on, the Board will not function effectively.

Non-attendance and non-participation of Board members – If Board members do not attend meetings or participate therein, the discussions would be lopsided.

Lack of effective leadership – If free and frank discussions are not promoted in the boardroom, Directors would not be able to contribute effectively.

Disregard to confidentiality – Information that is presented to the Board is confidential. The same should not be leaked.

Lack of mutual respect or proper order – If conversations between Board members are not civilised and respectful, it would prevent the proper functioning of a Board. Hostility in the boardroom would go against the grain of meaningful discussion.

Monopoly in discussions – One or two members monopolising the discussions.

Some of the steps that can be taken to overcome a dysfunctional Board are

Board review – The Board must do a deep dive into an analysis of its functioning. This would help identify the pain points, and actionables to improve those.

Induction of new members – If required, the Board should consider inducting new Directors.

Setting Board processes right – Setting of agenda, and information flow to the Board members should be reviewed, in order for the Board to improve its functioning.

Review of committee meetings – The Board should review the functioning of each committee, so that their functioning effectively can help the Board to function effectively.

Leadership – The Chair of the Board should ensure that free and frank discussions are promoted, and that there is mutual trust and respect in the boardroom. Also, there should not be disproportionate airtime for one or two members.

Boards are tasked with setting the strategy for companies. It is very important that there is role clarity for the Board, and each of the Directors, so that Boards are value-adding, and not value-destroying.

Source:

[excellence-12]

Strong Governance, Stronger Startups – Build for Long-Term Success!

Startups often focus on rapid growth, but strong corporate governance is key to long-term success. From defining clear roles for founders and investors to ensuring compliance and accountability, the right governance structure builds trust and stability. At Excellence Enablers, our expert corporate governance consultants help startups establish best practices, enhance decision-making, and mitigate risks.

[excellence-12]

Role of whistleblowing mechanisms in fostering ethical Governance

Whistleblowing mechanism relates to reporting of a suspected wrongful act or misdoing within a company. In India, it is mandatory for companies to have such a mechanism, and to give access to its stakeholders to report a wrongdoing, without the fear of victimisation. It plays a critical role in corporate governance, by promoting accountability of persons in power, and ensuring ethical conduct.

For this mechanism to be effective, the following are essential:

Policy – Having a Board approved policy, which is hosted on the website of the company. This policy should be upto date, and complete in all respects. Some companies host the policy on intranet, thereby preventing persons from outside the company from having access to this mechanism.

Who can report – The policy should provide access to employees, Directors and all stakeholders to report any wrongdoing. Often, the policy is restricted only to employees and Directors, leaving out stakeholders, who too could have instances to report.

What is to be reported – The policy should give an indicative list of the kind of wrongdoings that should be reported. This would help the person reporting, and prevent concerns, such as HR related concerns, from being reported using this forum. The policy should clearly state that it is not a grievance redressal mechanism for employees.

Reporting – The policy should clearly state to who should be reported to. This would include the name of the individual/ committee, and the contact details (email id and address) of the person. If the company encourages oral complaints, then the number of the person should also be clearly given. It should also mention that anonymous complaints would be discouraged.

Access to Audit Committee Chair – Law provides for access to the Audit Committee Chair in exceptional situations. This is to ensure that the mechanism has the independence required, and the whistleblower has the confidence that genuine complaints would be dealt with.

Confidentiality of identity – A number of companies often do not receive any complaints under this mechanism because the whistleblower may feel that his/her identity may be revealed, or that he/she would be unfairly treated post the complaint. For this mechanism to be successful, it is vital that a culture of trust is created, and persons are assured that there will be no victimisation of the person making a complaint.

Training/ awareness generation – Another reason why companies often do not receive complaints is because there is inadequate awareness of the mechanism. The compliance department should ensure that at regular intervals there is enough awareness generation, emphasising the fact that there will be no victimisation for persons, including termination, demotion, abuse, discrimination or adverse impact on their appraisal, if they use this mechanism.

Process for investigation – The policy must mention the standard process that would be followed in case of receipt of complaint. This is only so that the stakeholders are made aware that due process will be followed once a complaint is received.

Oversight of Audit Committee – Ordinarily, summary of complaints received, along with conclusions from investigations, and actions taken, if any, are presented to the Audit Committee in its quarterly meetings. This ensures that there is a process for such complaints to be reported to a committee of the Board, and the independence required for this mechanism to work efficiently, and effectively, is ensured.

An effective whistleblower mechanism is based on trust in its independent functioning, and for that, the commitment of the Board is critical. Source: https://excellenceenablers.com/role-of-whistleblowing-mechanisms-in-fostering-ethical-governance/