CSCG aims to be a Centre of Excellence fostering sustainable and ethical organizations defining the future of responsible capitalism. It will focus on facilitating cutting-edge research and dialogue to improve the ESG performance of organizations while nurturing an ecosystem for stakeholder capitalism in India.
Driven by the mission statement, during its initial years of operation, the Centre shall focus on developing its capabilities in select areas of ESG integration - in line with global trends while being equally mindful of the contextual realities of India.
1. ESG Impact on Organizations: Materiality, Enterprise Value and Risk
A core focus area of CSCG will be to initiate and support empirically grounded research to contribute to the emerging state-of-the-art scholarship on how ESG factors impact organizations which includes — materiality assessment, impact on long term enterprise value, and overall risk profile of organizations.
2. ESG Reporting, Transparency, and Data Infrastructure
The Centre will actively engage with multiple stakeholders to help develop the ESG data infrastructure, fine-tune the ESG measurement frameworks, reporting structures, and impact assessments methods to fit with the requirements of the Indian organizations.
3. ESG and Investment Stewardship
CSCG shall aim to develop an informative index of ESG performance that is empirically grounded and based on a deeper qualitative understanding of the operations and contextual factors for Indian enterprises.
4. ESG and Corporate Social Responsibility
The Centre shall support research and investigations to develop insights on linkages between the company’s CSR initiatives, associated performance along ESG dimensions, and evaluation of the impact on overall enterprise value and risk profile.
Research and Insights
CSCG shall support research projects aligned with the core mission and focus areas. Research support could include competitive research grants, fellowships, and support for doctoral research. The Centre may also support data procurement and collection activities through surveys, interviews, and other electronic means to curate primary and secondary data to support research undertakings. A core research outcome shall be the development of an India specific ESG metric.
Advisory and Consulting
CSCG at IIMA will actively engage with companies, investors, and other organizations on short-term consulting projects and advisory services that leverage the core strengths and scholarship developed at the Centre. Advisory services will also include enterprise-level application of the metrics, methods, and frameworks developed at the Centre.
Training, Outreach, and Knowledge Dissemination
CSCG will support the design and development of teaching and training materials including but not limited to case studies, simulations, multimedia content, and other novel pedagogical tools. The teaching content and material developed shall be used in teaching and learning programmes conducted by the Centre and its affiliates. CSCG will conduct periodic outreach and knowledge dissemination activities like expert webinars, public talks, and panel discussions. It will also conduct a flagship annual conference on ESG, with the goal to become a thought leader and an influential platform for sharing research, insights, and conversations among scholars, practitioners, policymakers, and the media.
Advocacy and Impact on Policy Design
The Centre will facilitate dialogue and knowledge sharing between the multiple public stakeholders in the country to help in evidence-based policy design and standards-setting for the ESG ecosystem in India.
Professor Biju Varkkey
The Securities and Exchange Board of India (SEBI) has made Business Responsibility and Sustainability Reporting (BRSR) mandatory for the top 1000 listed entities, focusing on Environment, Social, and Governance (ESG) regulatory disclosures. As ESG becomes a key agenda item for boards and committees due to increasing regulations, the roles of Company Secretaries in Indian public listed companies are expected to expand. However, there is a lack of research on the relationship between company secretaries and board effectiveness, especially concerning strategic decision-making in the ESG context. While literature covers the relationship between corporate strategic decisions and boards, the specific role of company secretaries in shaping corporate governance, particularly in supporting ESG in Indian public listed companies, remains unexplored. By using the 'legitimacy theory' and 'organization role theory' this research aims to delve into the evolving role of company secretaries in enhancing board effectiveness within the ESG framework.
Professor Aditya Moses
Numerous organizations operate with a purpose that goes beyond mere commercial pursuits. However, the ever-changing external environment can compel organizations to alter their operations. For instance, nonprofit social enterprises, driven by the need to generate commercial revenues, may shift their focus from social to economic value creation, necessitating a renewal of their governance structure to maintain a balance between the two. This transition may lead to mission drift, where the organization's core values become precarious amid environmental complexities. The current typologies of hybrid organizations fail to consider the influence of governance on these organizations. Governance plays a crucial role in preventing mission drift, establishing control mechanisms, and ensuring meaningful outcomes for beneficiaries. However, in some cases, mission drift can be a viable response to values-based complexity. Thus, organizations should be seen not only as governance mechanisms for protecting values but also as equilibrating mechanisms that coordinate the interests of multiple stakeholders. This research project aims to study the evolution of governance mechanisms in social enterprises and its impact on social and organizational performance.
Professor: Chitra Singla
Sustainability has become an indispensable challenge for organisations worldwide, where environmental, social and governance (ESG) performance is now as critical as financial performance for long-term success. Investors, including institutional investors, consider ESG factors when making investment decisions due to its positive influence on a firm's financial performance, leading to higher market value, lower capital costs, and an enhanced reputation that also supports international expansion efforts.
This study investigates the relationship between a firm's sustainability performance and the completion of cross-border mergers and acquisitions (CBMA). CBMAs often face legitimacy deficits stemming from legal, regulatory, cultural, financial, shareholder activism and political differences. The research suggests that firms with higher ESG performance are more likely to gain organisational legitimacy, thereby increasing the probability of successfully concluding CBMA deals. By recognising the impact of sustainability on international business endeavours, organisations can strategically position themselves for long-term growth and success in a competitive global landscape.
Abstract: This study examines the impact of directors’ education and work experience on institutional and retail shareholder votes on their appointments to firm boards. The results indicate that institutional shareholders’ dissent is negatively related to the directors’ education level. More specifically, the results indicate that institutional voters are mindful of directors’ academic majors and express lower dissent on the appointment of directors who hold a master’s degree in management or when directors holding engineering degrees are appointed in firms operating in industries requiring such experience. We also find evidence of higher shareholder support for directors with government experience. Further, directors from a legal background face lower institutional dissent in firms which are exposed to high litigation risk More importantly our results indicate that retail shareholder dissent is not associated with director characteristics discussed above. This result further bolsters the role of institutional shareholders in strengthening corporate governance mechanisms.
Abstract: Employing a novel setting where shareholders vote on the adoption of annual financial statements, this study examines the relationship between shareholders’ voting dissent and the quality of reported earnings using distinct data of institutional and retail shareholders’ votes in over 4,400 annual general meetings (AGM) of Indian firms. The percentage of dissent by institutional shareholders varies inversely with the earnings quality of the firms. In contrast, retail shareholders’ dissent is influenced by the firm’s financial performance but not earnings quality. This supports the hypothesis that institutional investors understand and care for earnings quality unlike retail investors who are considered less sophisticated. In addition, we find that the negative relationship between earnings quality and institutional dissent is more pronounced in firms with higher incentives to manipulate earnings, such as those with younger listing ages, higher market-to-book ratios, high stock return volatility, and in firms with foreign institutional investment, showing a strengthened governance focus by institutional investors in these contexts. Institutional dissent is also linked to negative stock market reaction, future auditor and top management resignations, and improved earnings quality in the following year. Thus, institutional dissent serves as a monitoring, disciplining, and correcting mechanism.
How Well Do Shareholders Know Their Directors? An Examination of the Relationship Between Directors’ Education and Experience and Shareholder Votes on Director
Appointments
Name of the Faculty: Prof. Naman Desai
Abstract: This study examines the impact of directors’ education and work experience on institutional and retail shareholder votes on their appointments to firm boards. The results indicate that institutional shareholders’ dissent is negatively related to the directors’ education level. More specifically, the results indicate that institutional voters are mindful of directors’ academic majors and express lower dissent on the appointment of directors who hold a master’s degree in management or when directors holding engineering degrees are appointed in firms operating in industries requiring such experience. We also find evidence of higher shareholder support for directors with government experience. Further, directors from a legal background face lower institutional dissent in firms which are exposed to high litigation risk More importantly our results indicate that retail shareholder dissent is not associated with director characteristics discussed above. This result further bolsters the role of institutional shareholders in strengthening corporate governance mechanisms.
Shareholder Ratification of Financial Statements: Earnings Quality, Shareholders’ Dissent, and its Consequences
Name of the Faculty: Prof. Naman Desai
Abstract: Employing a novel setting where shareholders vote on the adoption of annual financial statements, this study examines the relationship between shareholders’ voting dissent and the quality of reported earnings using distinct data of institutional and retail shareholders’ votes in over 4,400 annual general meetings (AGM) of Indian firms. The percentage of dissent by institutional shareholders varies inversely with the earnings quality of the firms. In contrast, retail shareholders’ dissent is influenced by the firm’s financial performance but not earnings quality. This supports the hypothesis that institutional investors understand and care for earnings quality unlike retail investors who are considered less sophisticated. In addition, we find that the negative relationship between earnings quality and institutional dissent is more pronounced in firms with higher incentives to manipulate earnings, such as those with younger listing ages, higher market-to-book ratios, high stock return volatility, and in firms with foreign institutional investment, showing a strengthened governance focus by institutional investors in these contexts. Institutional dissent is also linked to negative stock market reaction, future auditor and top management resignations, and improved earnings quality in the following year. Thus, institutional dissent serves as a monitoring, disciplining, and correcting mechanism.
2023
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2024
Sakina H. Poonawala and Neerav Nagar
Avinash Arya and Neerav Nagar
Avinash Arya and Neerav Nagar
2024
Anubhav Bhattacharya, Ashish Singhal, Ayushi Jain, Gayatri Iyer, Shon Wadmare, Dr. Neerav Nagar
We employ machine learning techniques to evaluate the potential of predicting Environmental, Social, and Governance (ESG) controversies by analysing the thematic content of corporate ESG reports. Using models such as Random Forest (RF), K-Nearest Neighbours (KNN), and Gradient Boosting Machines (GBM), we extract and empirically quantify features like polarity, subjectivity, and readability scores from U.S. S&P 500 companies’ ESG disclosures spanning from 2014 to 2024. Our analysis reveals that the RF model produces a valid set of predictors for ESG controversies, achieving an AUC score of 0.8186 and an accuracy of 81% in out-of-sample tests on the U.S. dataset. However, when the model is applied to Indian firms' data, the performance declines significantly, underscoring the challenges of cross-regional generalization in ESG reporting. Collectively, our findings indicate that the thematic content of ESG reports, and the extracted textual features are useful signals for predicting ESG controversies. However, the results also highlight the importance of developing region-specific models to improve predictive accuracy, offering valuable insights for investors, regulators, and companies in managing ESG-related risks.
Sakina H. Poonawala and Neerav Nagar
In this paper, we focus on the presence and effectiveness of busy directors. We propose that the presence and effectiveness of busy directors is associated with the life cycle stage of the firm. While firms in the introduction, growth and decline stages of firm life cycle are more likely to demand the services of busy directors as compared to the mature stage firms given the critical needs of such firms, busy directors may prefer to be on the boards of mature firms on account of the attached reputation benefits. We find evidence in support of the ‘supply side’ argument. We find that busy directors are less likely to be present in the introduction and growth stage firms as compared to the mature stage firms. We also find that the presence of busy directors is positively associated with firm performance in the growth and decline stage firms. Overall, we believe that a regulatory limit on the number of directorships held by a director is not a good idea. The directors are talented and knowledgeable enough to choose a firm and the amount of time and effort to exert.
Avinash Arya and Neerav Nagar
An extensive body of literature documents the central role played by management accountants in the development of performance measures. However, little research exists on the temporal evolution of performance measures in response to changes in the macroeconomic environment. This study examines the impact of economic cycles on the use of sales and income, two widely used performance measures, in executive compensation. We find that during normal periods income receives greater weight than sales in the Chief Executive Officer (CEO) compensation. When recession strikes firms reduce the weight on income but not on sales, resulting in an increase in relative weight on sales. Further investigations reveal that the cross-sectional variations in the weight on sales and income are conditioned by the life cycle stage of the firm. Growth and mature firms assign more weight to income during normal times and also reduce the weight on income most during recessionary period. In contrast, introductory firms increase weight on sales while decline firms leave weights on sales and income unchanged during recession. We also analyze the compensation of the Chief Sales Officer (CSO). Our results indicate that during normal periods both sales and income receive equal weight. However, during a recession the weight on sales rises significantly while the weight on income falls significantly. These findings indicate that the firms dynamically adjust the weights on sales and income in response to phases of economic cycles. To our knowledge, this is the first study to look at the impact of recession on the use of sales and income performance measures in executive compensation.
Avinash Arya and Neerav Nagar
The rising pay inequality between CEO and rank and file employees has attracted considerable attention from the public, activists, regulators, and academic researchers. High CEO pay may incentivize employees to work hard for promotions and/or can help a firm attract a talented CEO. Alternatively, high CEO pay may lead to inequity aversion and decrease employees’ work effort and/or signal rent extraction. We employ an advanced DuPont return on assets (ROA) decomposition to empirically test the predictions of these competing theories about the effects of pay inequality on firm performance. Using a sample of 1,581 Indian firms during 2017-2023 period, we find that pay inequality leads to better future performance as measured by the ROA, providing prima facie support for tournaments and talent assignment. However, an analysis of drivers of ROA reveals that the source of ROA improvement is better profit margins (PM) as well as asset utilization (ATO). Further decomposition of ATO reveals that pay inequality leads to a significant decrease in labor productivity consistent with inequity aversion. Labor intensity increases significantly and is the sole driver of gains in asset utilization that in turn leads to ROA improvement. In other words, the observed improvements in ROA are simply the result of hiring more employees. Although it makes sense to hire more employees in an economy with low labor costs, it is hard to see as a reflection of executive talent.
2022
Abhiman Das, Sanket Mohapatra, and Akshita
This paper examines the role of state-owned banks' presence in allocation of credit to different sectors in India using the central banks Asset Quality Review (AQR) as a quasi-natural experiment. The AQR resulted in a larger increase in non-performing loans of state-owned banks as compared to other banks. We exploit the heterogeneity in the presence of state-owned and other banks across districts to identify the supply side channels for bank credit reallocation. Using a difference-in-differences analysis, we find that the top-third of districts based on presence of state-owned banks branches experienced a higher fall in the share of credit to the industrial sector in the post-AQR period compared to other districts. Such districts also experienced a greater increase in retail loans, which are considered less risky compared to industrial loans. Further, an analysis using a panel vector autoregression finds that the AQR, through an increase in non-performing loans of state-owned banks, led to a decrease in economic growth at the district-level. The results of this study suggest that central bank policy reforms can influence bank credit allocation at the sub national level and have real economy effects.
