Corporate governance in modern times: Utilization of technology in achieving stronger corporate governance

The author of This Article is Thasneem N, A Third Semester BA LLB Student at Government Law College, Thiruvananthapuram. Her areas of interest include Intellectual Property Rights, Corporate Law and International Law.

“CORPORATE GOVERNANCE IS ABOUT PROMOTING CORPORATE FAIRNESS, TRANSPARENCY AND ACCOUNTABILITY”
-J WOLFENSOHN [FORMER PRESIDENT OF WORLD BANK GROUP]”

INTRODUCTION

Corporate governance is the system of rules, practices and processes through which a firm is directed and controlled effectively. It is a balance involving interests of company stakeholders like shareholders, customers, suppliers and management executives.It provides a framework for the attainment of a company’s objectives and encompasses the plans for internal controls to perform measurement and corporate disclosures which is essential for management.  Accountability, transparency, responsibility and fairness are the basic principles of corporate governance. A company’s corporate governance is important to investors since it shows the company’s aims and integrity. For building trust and cooperation with investors, corporate governance plays a big role. Poor governance at best leads to a company failing to achieve its stated goals and at worst can lead to collapse of the company and losses in financial stability of the company.

Wide access to markets are created due to information technology. Technology nowadays is playing an important role in corporate governance. As said before the basic principles of corporate governance and technology favor accountability, transparency and fairness of the company and improve the overall efficiency. As far as technology goes, the use of social media platforms has increased the participation of the public to build contacts with the public easily. Social media platforms like Facebook, Instagram, LinkedIn, etc. are major means of technology which also helps the public to seek knowledge about the company.

E-commerce platforms are also the result of increased technology promoted efficiency in delivering public goods and services.  E-commerce platforms like Amazon and Flipkart  promote easier supply and sale of goods and services. All platforms of technology guarantee public safety and protection in commercial business activities and provide consumer rights. It promotes the connection between the individual and companies and make it safer for them to conduct business. 

New technologies such as the block chain and artificial intelligence have a profound impact on corporations. Research has shown that block chain could be helpful in registering security transactions, identifying shareholders, administering virtual shareholder meetings and maintaining corporate records and accounts with low risk of misuse or mishandling of such matter. Other technologies like algorithms and artificial intelligence are also noted to have a greater effect on corporations. Scholars have questioned whether these types of technologies could ever replace the directors, managers and employees. Also whether these technologies could work without human ownership, interference or connection and work efficiently

BIG DATA

Big data refers to the phenomenon which is the advent of web 2.0 and the development of mobile tools, tablets and smartphones has become explosive and targets the use of data for social, scientific and business purposes. This phenomenon consists of three V’s :

  • Volume of data,
  • Various sources and types
  • Velocity of data. 

Big Data is used mainly in the following fundamental areas: Organizations and human resources and Production and decision making processes aimed at customer service.

  1. Organizations and human resources 

These are the two areas where big data is a hard component of the organization and the design and structure of the organizations and the soft component are made up of the human resource and its activities. The use of big data on the processes, timing and efficiency and effectiveness of individual practices or complex organization models signifies the awareness of the organization itself. The data represented can lead to the improvement and redesign of organizational structures. However, these innovations are linked to the major ethical challenges  such as protecting employers’ right to privacy and autonomy, and they raise greater issues concerning human work and employment in the digitalized society in future.

  1. Production 

The Big Data can be optimized through 

Warehouse management: In order to reduce cost and waste of resources, inventory optimization can be done and the system which coordinates the purchases, production and procurement optimizes their relationship with the suppliers.

Supply chain: IoT networks for the collection and management of information facilitate dialogue between all the actors in the supply chain, regardless of the size and  location of a business. Therefore, logistics and transport functions can also benefit from smart data management to synchronize the supply chain.

ARTIFICIAL INTELLIGENCE AND CORPORATE GOVERNANCE

Artificial intelligence [AI] can support corporate governance in many ways, making this technology practical in daily business operations. Director training programs often encourage professionals to make use of these tools. Although it is possible for a company to successfully operate without the help of AI technology, using these tools can help simplify director training for everybody involved.

Market prediction is the way through which AI tools can improve everyday work practices

AI technology can predict trends within the market. With the input of past market patterns and statistics, programmers have created tools that monitor patterns and trends. These tools can make predictions and optimize financial decision-making for a company. Those responsible for corporate governance can use these predictions to scale the business and increase profits. The market prediction tools are also beneficial for investment analysis and business plan development.

CORPORATE GOVERNANCE IN INDIA

Corporate governance in Indian scenario focuses on:

  • Protection of minority shareholders.
  • Accountability of board of directors and management of the company
  • Timely reporting
  • Corporate social responsibility.

However, in the case of India, the corporate governance regulatory framework is composed of statutes and regulations that require supervision by several regulators:

  • The Securities and Exchange Board of India (SEBI) is the principal regulator for listed companies.
  • The Ministry of Corporate Affairs (MCA) and the registrar of companies (Registrar) administer the Companies Act 2013 and the relevant rules apply to all companies, including listed companies.
  • Additionally, sector-specific regulation also applies, and this can have a significant impact on the governance regime.

Perhaps the most significant issue that Indian regulators must address is ensuring that independent directors can fulfill their obligations in the closely held and controlled world of Indian corporations.

JUDICIAL PRECEDENTS

In Saurashtra cement ltd. and Anr v. Union of  India it was held that said amendment was as a measure of good corporate governance and management and a measure for protection for investors, in order to provide immediately certain measure for good corporate governance and for protection of investors.

In the Tata-Cyrus Mistry case, the verdict came down in the favor of the tata group. In spite of the accusations of oppression and mismanagement leveled up against the tata group the decision was made by a Supreme Court bench led by chief justice S A Bobde, Justice V Ramasubramanian and Justice A S Bopanna .The Supreme Court set aside the National Company Law Appellate Tribunal(NCLAT) decision to restore cyrus mistry as executive chairman of Tata sons on December 18, 2019.

CONCLUSION

Corporate governance has a huge role in the corporate companies and organizations. It determines the proper functioning of the organizations thus affecting the company output or production depending upon the company’s objectives. Technology, nowadays, is the core and an important factor that most companies depend upon. These result in better accountability, functioning, transparency and overall development of the company.  Artificial intelligence and big data, which are examples of technology, can be provided as a proof of how much the utilization of technology has an effect on the corporate governance.  

REFERENCE

  1. GeisVan der Elst & LafarreYermack, Bringing the AGM to the 21st Century: Blockchain and Smart Contracting Tech for Shareholder Involvement by Christoph Van der Elst, Anne Lafarre :: SSRN .
  2. see, eg, Möslein  Bayern and LoPucki, Robots in the Boardroom: Artificial Intelligence and Corporate Law by Florian Möslein :: SSRN
  3. Sausatra cement ltd. and Anr v. Union of  India, GLR 1384, 2007 75 SCL 375 Guj
  4. Tata consultancy services ltd. V Cyrus investment Pvt. Ltd.26th march,2021.