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9 CPJLJ (2019) 164

Corporate Governance and Sustainability

CORPORATE GOVERNANCE AND SUSTAINABILITY

by
Riya Gulati*
Abstract
Corporate governance and sustainability of two sides of the same coin which are contrived on three
precedents of social development, economic progress and environmental improvements. Corporate
governance is a broader term whereas sustainability is restricted only to economic, social and environmental
development. Corporate governance plays a crucial role in corporate sustainability performance and hence,
ensure the level of business enterprise's success.
This paper will provide the quintessence of corporate governance and business sustainability. It will deal
with the measurement of corporate governance with regards to: sustainability performance, social equity
performance, economic performance and environmental performance etc. It will discuss the relation between
corporate governance and sustainability by focussing on the impact corporate governance have on
sustainability and contrariwise. It will also highlight how efficient/inefficient (governance and sustainability)
leads to permanent success and deeper problems in the business.
“Good corporate governance, it's about being proper to prosper.”
- Toba Beta
Keywords: Corporate Governance, Sustainability, Economic Performance, Social Equity,
Environmental Performance, Sustainable Business, Corporate Social Responsibility.
Introduction
Corporate governance is the mode in which a company stratagem itself. It refers to the system of
regulations, practices and procedures through which a corporate entity is controlled and directed. It
encompasses the processes by which company's targets are framed and prosecuted in the context of the
regulatory, social and mart environment. It embraces overseeing the policies, practices, actions and decisions
of companies, their representatives and affected stakeholders. Governance framework recognizes the
dispensation of rights and responsibilities amid divergent participants in the firm and incorporate the
regulations and mechanisms for

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making resolutions in corporate matters. Corporate scandals of assorted forms have perpetuated political and
general interest in the modulation of corporate governance.Corporate Governance, Wikipedia, available at Corporate_governance>, last
seen on 15/05/2019.">1 The desideratum for corporate governance was felt after the (Sahara and Satyam) scams. The

concept of corporate governance was inculcated under the Clause 49 of the Listing Agreement of SEBI and it
was later incorporated under the Companies Act, 2013. Its scope revolves around balancing the interests of
company's stakeholders (shareholders, financiers, employees, management, suppliers, customers, community
and government).2 When implemented constructively, it can avert corporate frauds, scandals and civil &
criminal liability of the company.Corporate Governance important?, Business Dictionary, available at corporate-governance-important/>, last seen on
15/05/2019.">3 Sturdy corporate governance ameliorates efficiency and transparency in the corporation and builds

up investor's credence in the firm. Corporate entities with vigorous corporate governance also consider the
certitude of the consumers, stakeholders and society to be of significance in fortifying reciprocal sustained
developments. A self-policing corporation that is responsible of shareholder and debtholder capital inflates the
company's public image. A firm without a system of corporate governance is contemplated as a body without
a psyche. In the long run, corporate governance emboldens corporate triumph and economic escalation.4

The term “sustainability” has transpired over juncture from the “triple bottom line” facet of financial
viability, social obligation and environmental responsibility. It has unfolded from the abstraction of corporate
social responsibility (CSR) and for countless years the correlative upshot of corporate financial performance
and corporate sustainability performance has been controverted. Nonetheless many preceding perusals on
CSR chiefly pivoted on the short-term effect whereas sustainability engagement kingpins on the enterprise's
long-term economic performance.corporate sustainability performance, corporate governance and corporate financial performance, Semantic Scholar, 1,
1 (2013), available at 5
Business sustainability is a mechanism by which corporations govern their financial, social and
environmental-threats, opportunities and responsibilities. It refers to business models and managerial
resolutions established in

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economic, social and environmental dimensions. These three impressions are referred to as profits, people and
planet.6 A sustainable corporation is one that fabricates profit for its shareholders while shielding the
environment and tweaking the lives of those with whom its interfaces. By subsuming sustainable practices
can lead business to have a better corporate culture and long-term profitability. Corporate sustainability
accentuates to create long term stakeholder value by executing the business policy that centres on the social,
cultural, economic, environmental and ethical aspect of carrying business. Business sustainability is
imperative for the prolonged-term opulence of global corporations. Leading international corporations are
proliferating pragmatic yardsticks and metrics to apply the sustainability propositions which will maximize
their opportunities and prune the negative effects that their crucial activities have on the communities,
environment and economies. Nowadays, business sustainability encapsulates scrutiny to such quandaries as
corruption, human rights, women's empowerment, climate change and supply chain practices. On a collateral
trail, they are tackling safety of the workers other challenges faced in their manufacturing supply chains,
advancing right-respecting security policies in their oil fields and mines by laying cogent substantive
benchmarks, augmenting internet privacy protections for the netizens and, fabricating intramural systems to
attain allegiances and providing attainable solutions when those standards are not met. Business
sustainability is indispensable because it's the virtuous thing to do and it fulfils a company's long-term
mercantile interests. Hence, the business leaders are conceding that they require to encompass immense
tenets of sustainability in their quotidian business resolutions as it is not merely a matter of doing righteous
thing but it's smart business practice.7

Correlation between Corporate Governance and Sustainability

Good governance is equally important for the society as it is for the corporations as it ameliorates the
public's certitude and faith in the corporate leaders. It is in the best interest of the corporation to be socially
accountable and ingenious because it is these things that assure sustainability. To assimilate sustainability
into strategic planning, the corporations are required to take four essential facets into consideration-societal
influence (impact of society on the corporation), environmental impact (effect of the

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corporate entity on the geophysical environment), organizational culture (correlation between the corporate
entity and its internal stakeholders) and finance (impact of the corporation's financial return with regards to
the potential for risk and the level of risk). Sustainability provides privileges to the corporations in the long
run. In the recent years, everyone all around the globe have been increasingly conscious about preserving the
natural resources in order to make them last longer. Business enterprises are the tremendous users of the
natural resources and therefore they are trying to burgeon a culture that emboldens all the stakeholders to
reserve energy, minimise waste, cut costs and enhance other environmental factors. Taking a conservationist
panorama allows the corporations to expand to new marts, inflate corporation's credibility, furnish them with a
competitive edge and get ahead of prospective regulatory matters. Business enterprises that incorporate
environmentally sound policies and social responsibilities as fundamental constituents in their growth strategy
typically generate sustainable economic values.

A sustainable business is one that conjures profit whilst ameliorating environmental and societal conditions.
Energy, waste, workplace, purchasing and transport are the crucial areas that are being addressed by majority
of the business enterprises.8 Sustainability is beneficial for the business enterprises in numerous ways as it
succours the business firms to become more efficient, provide a rostrum for innovation, revamp brand image&
reputation, inflate productivity &truncate costs, minimize waste, escalate the ability of the corporations to
comply with regulations, attain better growth, enthral & perpetuate personnel and stiffen stakeholder
relations.9 A business pursuit that is socially accountable, economically feasible and environmentally convivial
is generally deemed as being sustainable. The three pivotal balusters of sustainability are environmental,
social and financial, hence, the objective in burgeoning sustainable business practices is to create stratagems
that safeguard long-term viability of planet, people and profit.10 A sustainable organization is one that
accelerates profits for the shareholders while safeguarding the ecosystem and refining the existence of those
with whom it interconnects. It operates in such a way that its business interests intersect with the societal
and environmental interests. By following up sustainability principles and

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corporate governance practices, the corporations turn their responsibilities into opportunities and hence, they
are elemental for the success of the business in the 21st century.11

The precepts of corporate governance are based on transparency, responsibility, accountability and fairness
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which are inherently connected to the company's corporate social responsibility. Good corporate governance is
vitally contrived on three precedents (of sustainability): social development, economic progress and
environmental improvements. Good governance stimulates sustainability and helps the corporations to attain
their sustainable values. By incorporating good corporate governance and sustainability practices, the
corporations can reap prolonged-term benefits such as increasing its equity, enticing new investors &
shareholders
seen and reduction of risks.corporate governance & sustainability?, Diligent Insights, available at corporate-governance-sustainability/>, last
on 17/05/2019.">12

Corporate sustainability is the capacity of the corporations to positively impact economic, social and
environmental development by their market existence and governance practices. A precondition for utterly
operating corporate governance with respect to sustainability reflects sustainability by the entire procedure of
business management.corporate governance focusing on corporate performance management and reporting, 69 Elsevier, 1, (2014), available at 13
Corporate governance and sustainability are the vehemently vexed issues at the business and governmental
levels. Nevertheless, the corporation has volition about their level of rejoinder to sustainability, non-fulfilment
to abide to institutionalized, critical norms can imperil the corporation's resources, legitimacy and, eventually,
its actuality. The corporations who disregard to sustainability will “almost definitely face extinction.”
Sustainability is convoluted and multidimensional, in which corporations have three allegiances towards the
society. Corporations are not only required to furnish economic corollaries, but they are also required to
concomitantly demonstrate social and environmental performance. The rationales for the growing popularity of
corporate sustainability are: firstly, in the current years' climate change has been overwhelmingly recognized
as a ubiquitous issue entailing corporation's actions on environmental matters to succour arrest their
prospective prolonged negative effects on societal welfare. Secondly, the reports evince that investment
executives around the globe

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are progressively factorizing environmental and social performance into their appraisal of corporations,
recommending that economic performance is no more the only benchmark for business valuations. Thirdly,
some scholars regard sustainability as the extant battlefield for competitive edge, one in which corporation
must find an equilibrium approach between social, economic and environmental stratagems so as to
outperform contenders. In epigrammatic, corporate governance plays a central part in escalating social
responsiveness, economic performance, and environmental quality. If the corporations intensify their efforts to
embrace corporate governance and sustainability tenets, it will locale them to innovate, accelerate
performance enhancements and compete in the dynamic and resource constrained international economy.14

Impact of corporate governance on sustainability performance and vice versa

Corporate governance plays an indispensable role in corporate sustainability performance and hence,
ensure the level of business enterprise's success. The business organizations face increased thrust from the
government and stakeholders to vigorously act on sustainability related affairs. If the enterprises fail to
proactively responding sustainability matters, it may endure a loss of legitimacy, business & profit and might
even fail to subsist.15 The corporate culture of sustainability plays a predominant part in assorted aspects of
an enterprise's corporate performance and behaviour. Quality corporate governance can in vigoratelofty
sustainability performance.corporate governance on sustainability performance, 4 Journal of Sustainable Finance & Investment 21, 21 (2013), available at
16 Numerous precursory researches have indicated that corporate governance system that embraces the

mechanism of regulations, processes and practices by which a corporation is administered and controlled,
plays a pivotal part in the transcendence of sustainability performance and reporting. Significant affirmative
inters connections between the attributes of corporation board composition and sustainability disclosures
brace Eticanews
industry, a sublime corporate
(11/11/2017), governance
available at 17 mechanism.corporate governance on sustainability reporting: Empirical study in the Australian resources
Corporate sustainability has been appraised as a buildout for quality

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governance. The interconnection between sustainability and corporate governance is of paramount significance
as it tackles the stakeholder's economic, social, environmental and ethical needs. Corporations with good
governance are likely to be more socially virtuous and accountable.18 By fostering sustainability action and
leadership at the board level and into each strand of decision making, the corporations will be in a better
stance to methodically formulate decisions that refine their social and environmental performance and thus,
exalting their overall resilience and competitiveness.19 The sustainability governance paradigm men genders
substantial reverberations, contributing to value protection and fabrication through revamped product
innovation, risk management, employee engagement, cost-savings and client loyalty.20

When sustainability matters (such as water scarcity, climate change, human rights violations and other
challenges) becomes material to the enterprise's economic performance, the boards have an obligation to act.
It has been reported that the corporations that have robust board systems to administer sustainability are
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deftly positioned for efficacious performance. In fact, the corporations that address board governance in a
coherent way encompassing the right directives, the right people and the right incentives for sustainability
bespeaks the powerful sustainability performance. The corporation that is administered aptly for sustainability
is a corporation that performs well for sustainability. The boards oversee sustainability because the risks of
sustainability affect the global economy, sustainability is associated to financial performance, shareholders are
expected to act on sustainability and regulatory insistence requires the companies to take necessary actions.21
Hence, the good governance practices in sustainability matters retract the emphasis from short term profit to
long term value creation of the business.
Good corporate governance practice oscillates on the sound risk

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management, high quality business practices, integrity and ethics. The prime segment of any governance
structure is reckoned on how it manages the prolonged term operational opportunities and threats that are
progressively characterized “sustainability issues” in contemporary vernacular. Hence, sustainability is the
fundamental responsibility for sagacious boards. Sustainability issues present threats and opportunities and
their constructive administration aggrandizes the value creation and protection of the corporation in the long
run.corporate governance, The Conference Board of Canada, Canada May 2018, available at 22 Decision-making for sustainability is a
convoluted process as the impediments can be approached from divergent angles. An organized decision-
making structure labelled as “PrOACT” (Problem-Objectives & Measures-Alternatives-Consequences-Trade-
offs) is a technique used for fabricating a concise and clear synopsis of a problem and the feasible solutions so
that the decision maker can distinctly discern the corollaries of every alternatives.23 The art of virtuous
decision making plays a dominant role in the success of corporate governance which assures the sustainable
growth of the corporate entity.

Conclusion
Corporate governance is the mode by which a corporate entity policy and regulate itself. Good corporate
governance aspires to increase the business enterprise's accountability and circumvent the occurrence of
sudden and massive catastrophes.24 Due to non-compliance of the benchmarks of accountability and financial
reporting by the Board of Directors and management of corporation foisting hefty losses on investors, the
necessity for corporate governance was realised in India. A self-regulatory organization builds up the
confidence
Need, Importanceof and
the Conclusion,
investors and hence
Economics ensures
Discussion, availablethe
at sustained growth of the corporation.Corporate Governance in India:
environment/corporate-governance/corporate-governance-in-india-need-importance-and-
conclusion/10145>, last seen on 26/05/2019.">25 Quality corporate governance ensures transparency& lucidity in business

transactions, commitment to ethical conduct and values of the business entity, apposite disclosures&
efficacious decision making to attain corporate targets and safeguards the interest of the shareholder. In the
swiftly changing business environment, it has become essential that the modulation of the corporations is in
tune with the unfolding economic trends, embolden quality corporate governance

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and enable protection of the interests of various stakeholders and investors.Corporate Governance, Shodhganga, available at 26
Corporate governance discourses have steadily repositioned to sustainability, usually adduced through three
E's, i.e., Economic Performance,corporate governance on sustainability: a study of the Indian FMCG industry, 17 Academy of Strategic Management
Journal 1, 2 (2018), available at corporate-governance-on-sustainability-1939-6104-17-1-161.pdf>, last seen on 26/05/2019.">27 Social Equity and

Environmental Performance. The business entities are engaged in sustainability activities for multitudinous
reasons: economic considerations, ethical considerations, regulatory compliance and to respond to the
growing demands from customers and investors. Sustainability is a critical area of concern for today's
corporate world as it has the potential to impact company performance. Corporate sustainability lays a
foundation for safeguarding and augmenting the value of business firm.28 The sustainability performance of a
corporate entity is substantially affected by the profile of its corporate governance. In practice, there is a
paucity of superlative practice when it comes to establishing the governance system that would permit the
corporate entity to properly appraise the corporate's social and environmental impacts and how it affects the
corporate's capability to create value.

———
*
Paralegal at Law Offices of Caro Kinsella & Youth Ambassador at ONE Campaign, Ireland, can be reached at riya.gulati@ucdconnect.ie.
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15/05/2019.
3 Why is Corporate Governance important?, Business Dictionary, available at <http://www.businessdictionary.com/article/618/why-is-corporate
-governance-important/>, last seen on 15/05/2019.
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