Risk management is back on the priority list for corporations in India following the series of bomb blasts that rocked the country last week, leaving its financial hub in chaos.
Mumbai, the nation’s commercial capital which is still working to root out the remnants of the 2008 militant attacks, found itself once again caught in coordinated bombings that occurred during rush hour on July 13.
‘The area of corporate governance that will suffer the most due to terror attacks is risk management,’ says Shriram Subramanian, managing director of Bengaluru-based InGovern Research Services. ‘Mumbai is the heart of commerce in India and these terror attacks are aiming at weakening key businesses… Over the years, attacks in Mumbai have taken place at stock exchanges, the diamond trading centre, leading business hotels and the commuter train system.’
Subramanian, who is also the founder of InGovern, advocates a rigid corporate governance culture in India. He notes that in recent years not all local and international companies based in India have beefed up security measures. Detailed reference checks on new employees, disaster plans and more robust insurance arrangements should all be seriously considered. ‘Boards should ensure that risk management principles are put into practice and cascaded down the hierarchy.’
In the wake of recent events, Subramanian also says decentralizing operations will help employees in making decisions and mitigating risks ahead of time. ‘In this case, if the head office shuts down, the [entire] company doesn’t shut down,’ says the governance expert.
Echoing this sentiment is Sutanu Sinha, director of Academics at the Institute of Company Secretaries of India, who uses a SWOT (strengths, weaknesses, opportunities and threats) analysis to identify the key internal and external factors that are important to achieving a company’s overall objective.
‘If we analyse classically through SWOT, the attacks come within the ambit of threats [and] naturally one cannot ignore external factors,’ Sinha notes. ‘If any social unrest, riot or terrorist attacks happen, this has an impact on corporate functioning. It becomes part of the risk mitigation exercise.’
Experts warn that corporations must prepare for the new harsh reality of doing business in India. In 2008 when the four-day terrorist attack struck Mumbai and at least 166 people were killed, Ashok Kapur, chairman of leading private sector lender YES Bank, was among the dead. Kapur was a founding promoter of the bank and owned just under 12 per cent of the company. He was one of several financial executives killed in the attacks which, according to Subramanian, were not something companies were prepared for.
‘Boards should make sure there is a succession plan in place and consistently assess and report all threats to the company’s business and related mitigation strategies,’ Subramanian argues.
Sinha adds that terror attacks are not restricted to Mumbai; they can happen anywhere and companies should always be aware of this and have effective risk management strategies in place.’Business activities are now scaling up on a digital platform so geographical location is becoming less important,’ says Sinha.
[Article by Aarti Maharaj, Corporate Secretary]
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