The C.A.R.D. Intersection: Here’s how corporate governance is being reimagined

The convergence of Compliance, Audit, Risk, and Digital (C.A.R.D.) functions within corporate governance presents a drastic shift for Indian boards, necessitating a holistic understanding and proactive approach. In today's dynamic business environment, where regulatory landscapes evolve rapidly, technological advancements reshape industries, and risks abound from various fronts, the traditional compartmentalisation of these functions is no longer sufficient. As functional silos, one understands the importance and value-add that each of - Compliance, Audit, Risk, and Digital - bring to the corporate boardrooms. But modern-day commerce, needs to understand their convergence in a new dimension of C.A.R.D. This amalgamation presents a multitude of complexities for corporate boards, and when viewed through the lens of the Indian market, culture, and data dynamics, it becomes evident that the implications are far-reaching.

Indian boards must recognise the interconnectivity of C.A.R.D. and its profound implications for their governance practices. Embracing this convergence critically is paramount for boards to safeguard organisational integrity, navigate complex risks, and capitalise on opportunities in the digital age, ultimately ensuring the long-term success and sustainability of the businesses they oversee.

Compliance discussions within the boardroom add complexity due to the ever-evolving regulatory and internal control landscape. Boards must grapple with an intricate web of rules, both domestic and international, that impact their operations. The need to ensure adherence to these regulations by way of putting in place adequate internal control measures and to anticipate and adapt to future changes can consume valuable board time and resources, making it a constant topic of discussion. 

In a market with fast-changing dynamics dictating regulations abound, the compliance landscape is intricate. The pharmaceutical industry, especially those who manufacture drugs marketed in the US, for instance, grapples with stringent oversight from agencies like the Central Drugs Standard Control Organisation (CDSCO) and the US FDA. Any deviation from compliance standards not only results in legal penalties but also tarnishes corporate reputation.

Similar is the story across all the sectors including those dealing with hard core finance.

Audit discussions heighten board complexity because they require in-depth scrutiny of financial and operational aspects of the organisation. Missteps or discrepancies uncovered during audits can have serious repercussions, necessitating close attention from the board. The board’s role in ensuring audit independence and addressing audit findings further complicates the discussion. Audit processes are under heightened scrutiny, with recent audit related debacles that the Indian market has witnessed, exposing shortcomings in audit oversight. The corporate board's oversight of the audit function is critical in restoring investor confidence, and the role of independent directors in ensuring accountability cannot be overstated.

Risk discussions are integral but complex. The board must assess and manage risks ranging from macroeconomic volatility to cybersecurity threats and geopolitical factors. The diversity and magnitude of risks, coupled with the need for proactive risk identification and mitigation, make risk discussions a recurring and multifaceted challenge. 
India's vibrant market offers enormous potential, but it is equally fraught with risks. The automotive sector, facing rapid changes in consumer preferences and stringent environmental regulations, exemplifies the challenges. Boards must be attuned to these evolving risks to safeguard long-term sustainability and profitability. The banking sector in India has witnessed and overcome integrity challenges, exemplified by high-profile cases of non-performing assets (NPAs) and financial frauds. These instances cast a shadow on the integrity of boards, their oversight mechanisms, and their ability to detect and address issues promptly.

Digital discussions introduce complexity as boards navigate the rapid pace of technological change. Technology mitigates risks as a tool but generates risks at the same time. Decisions related to digital transformation, data privacy, and cybersecurity hence require a nuanced understanding of digital trends and the associated risks. Outsourcing to third party vendors, a usual practice in this space, germinates risks as sources of unintended consequences and hence makes board’s decision making ticklish. As such, the digital landscape’s continual evolution means boards must adapt their strategies, creating an ongoing and dynamic discussion. The digital wave sweeping India presents a double-edged sword. E-commerce giants like Flipkart and Amazon have transformed the retail landscape, but the digital age also exposes companies to cyber threats and data privacy concerns.

Functional silos, if not addressed, can lead to mishaps that are dangerous for the organisation. When Compliance, Audit, Risk, and Digital functions operate independently without adequate communication, critical information may be overlooked, leading to compliance breaches, undetected risks, or cybersecurity vulnerabilities. These silos can hinder the organisation’s ability to respond effectively to emerging challenges, making collaboration and a unified approach essential to avoid detrimental mishaps. The consequences of C.A.R.D. for corporate governance in India are profound, with layers of ethical and integrity issues rising to the surface. 

In an era where data is a prized asset, protecting sensitive customer information is paramount. The data-sharing controversy surrounding major digital platforms, such as WhatsApp and Facebook, underscores the ethical challenge of balancing business interests with data privacy concerns. The digital influence extends to social media, where ethical dilemmas often surface. The endorsement of cryptocurrency by Indian celebrities in 2021, later linked to a significant scam, highlights the ethical concerns facing corporate boards. Navigating the fine line between business interests and responsible conduct is a significant challenge.

The C.A.R.D. intersection profoundly impacts corporate governance in India, placing a premium on the boards' ability to address ethical and integrity challenges. Corporate choices have far-reaching consequences, affecting not only financial performance but also stakeholder trust and confidence. In this intricate landscape, Indian corporate boards must rise to the occasion, fostering a culture of ethics and integrity while embracing digitalisation and effectively managing risks. The corporate boardroom discussions in India have never been more complex, and their ability to navigate this maze will determine the success and sustainability of the businesses they oversee.

Authors are Senior BFSI Sector Governance & Surveillance Specialist, and Policy Researcher & Corporate Advisor; respectively. Their views are personal.