Financial Stewardship

The Cornerstone of Effective Governance for Directors
A financial understanding of directors is vital, as it empowers directors to engage meaningfully in governance. Directors must recognize that not all financial practices they encounter are suitable for their organisation. It is crucial for each director to be financially literate, possessing a good understanding of financial principles and the processes, rules, policies, and regulations that govern the effective and responsible management of financial resources. It is imperative that every decision, irrespective of its origin, is scrutinized for potential financial risk and aligns with the company's long-term interests. Effective financial management with innovative approaches is the cornerstone of any successful business.
The Davos Economic Forum, in January 2024, laid down basic thumb rules that direct economic activity around the globe. The uncertainties of climate change, geopolitical situations and possibility of wars, and shifting geography of supply chains have created a new dimension to the global financing ecosystem. Additionally, recessionary trends and inflation have compelled governments to take decisive action to sustain their economies and remain competitive. The interconnectedness of global business continually influences both, economies and financing mechanisms.
The US Central Bank's aggressive move on September 18, 2024 to cut interest rates by a half percentage point could turn out to be a tail wind for the Indian economy. It may help increase the flow of foreign funds into Indian markets, aid the rupee's stability and fuel the current bull rally, as predicted by some of the top experts. Corporates in India will have access to funds from all sources for successful global competition. Indirectly, this could lower borrowing costs for the government and corporations, spurring investment and helping growth. This decision pushed the Sensex by nearly 850 points in early trades. This is seen as a silver lining in the current difficult economic situation.
The ability of companies to capitalize on the global situation hinges on directors' understanding of financial governance. Regardless of their backgrounds, directors must foster robust financial risk management practices within their organisations. Their responsibilities include strategic planning, overseeing financial activities, securing adequate funds, and ensuring optimal utilization. To achieve financial growth and long term sustainability, business leaders must focus on profitability and monitor vulnerabilities, resilience, and solvency. Competent directors embrace foresight, providing timely solutions through effective leadership.
The collective effort of financially savvy directors will empower businesses to thrive amid uncertainties, ensuring they are well-equipped to capitalize on emerging opportunities in the marketplace, and spear sustainable growth in their organisations.
Author

Lt. Gen. Surinder Nath, PVSM AVSM (Retd.)
President, Institute of Directors
former Chairman, UPSC
former Vice Chief of Army Staff and
former Independent Director, L&T Ltd.
He took over as the President of Institute of Directors with effect from 02 December, 2022
Owned by: Institute of Directors, India
Disclaimer: The opinions expressed in the articles/ stories are the personal opinions of the author. IOD/ Editor is not responsible for the accuracy, completeness, suitability, or validity of any information in those articles. The information, facts or opinions expressed in the articles/ speeches do not reflect the views of IOD/ Editor and IOD/ Editor does not assume any responsibility or liability for the same.