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Standing Out in the Spotlight: How Strong Corporate Governance Can Benefit Beauty Brands Like Nykaa

Updated: Apr 4

Introduction

The Indian beauty industry has experienced tremendous expansion over the course of the past ten years, creating a sector that is both vibrant and extremely competitive. One of the most important players in this boom is Nykaa, a local e-commerce startup that specialises in selling beauty and wellness products. With the help of improving internet penetration and a growing middle class with increasing disposable budgets, Nykaa, which was established in 2012 by Falguni Nayar, a former investment banker, has rapidly risen to become a major player in the Indian beauty business while capitalising on these factors.


Falguni Nayar, the founder of Nykaa, has recently expressed views on the appeal of India to international entities operating in the cosmetics sector.  Her comments highlight how the vast and diverse consumer base of the country, which is enthusiastic about both domestic and foreign beauty products, is what drives the market's potential. As more and more international beauty brands seek to extend their presence overseas, India is being recognised as a crucial market, as evidenced by Nayar's observations.


The self-made billionaire stated in an exclusive interview with PTI that “the recent instances of corporate governance lapses in some well-known startups will lead to greater scrutiny by investors (in the ecosystem) and asserted that governance agendas have to be set out very early in an entrepreneurial journey. “


“Any compromise on governance just because a company is growing or chasing size  and scale cannot be justified,” she emphasised. 


Nykaa, she added, has been very strong on corporate governance. 


“I think the companies will also learn their lessons that there cannot be compromises on governance because you’re growing or because you’re going after size and scale; that is not a justification for not following the rules. If the industry has rules laid out, then the companies have to follow them.” She said. 


The significance of the concept of corporate governance is heightened within this particular context. Corporate governance encompasses the frameworks, tenets, and procedures through which organisations are regulated and overseen. It comprises the systems by which corporations and their governing bodies are obligated to provide accountability. Establishing trust between businesses and their stakeholders—including investors, consumers, and employees—requires effective corporate governance. Solid corporate governance is crucial for rapidly expanding companies such as Nykaa to maintain sustainable growth, encourage innovation, and mitigate risks in a market that is attracting global attention. It has a big impact on customer loyalty and investor confidence, especially in industries like beauty and wellness where brand repute and consumer trust are crucial. Therefore, in the ever-changing market environment where Indian beauty companies such as Nykaa contend with obstacles and prospects, the significance of corporate governance in guaranteeing integrity, openness, and responsibility cannot be emphasised enough.

Nykaa

Why Corporate Governance Matters for Beauty Brands

In today's fast-paced and ethically conscious market, beauty firms must place particular emphasis on the importance of solid corporate governance. Multiple factors render it of the utmost importance :-


Building Trust with Investors and Consumers

Strong corporate governance serves as an indicator to investors that a business is effectively managed, placing importance on principles such as transparency, accountability, and ethical decision-making. This level of confidence is essential for securing the necessary investments for expansion, innovation, and growth. Conversely, there is a growing trend among consumers to favour brands that not only provide high-quality goods but also demonstrate a commitment to their individual principles concerning sustainability, ethics, and corporate accountability. A beauty brand that establishes and maintains strong corporate governance practices effectively communicates to consumers its dedication to these principles, consequently fostering a loyal and devoted clientele.


Safeguarding Brand Reputation

Due to its consumer-facing nature and intense competition, the beauty industry places a significant emphasis on brand reputation. Strong corporate governance guarantees that an organisation's endeavours, encompassing product development and marketing strategies alike, are conducted in accordance with ethical principles. By requiring the disclosure of product ingredients, testing methods, and procurement practices, it prevents scandals that have the potential to damage brand reputation. In a contemporary age characterised by easy access to information, any breach of ethical principles can rapidly gain widespread exposure, inflicting substantial harm upon the reputation of a brand. Therefore, an endorsement of corporate governance signifies a dedication to preserving the credibility and integrity of a brand.


Promoting Sustainability and Responsible Sourcing

In the beauty industry, sustainability and responsible sourcing have emerged as crucial concerns for both consumers and regulators. The significance of corporate governance cannot be overstated when it comes to ensuring that businesses not only adhere to current environmental regulations, but also adopt sustainable practices. This includes minimising waste and carbon footprints, procuring ingredients responsibly, and ensuring that production processes do not exploit labour or negatively impact the environment. A increasing segment of consumers will be attracted to the commitment of beauty brands to ethical practices and environmental stewardship, which they can manifest by integrating sustainability into corporate governance.


In essence, robust corporate governance is critical for beauty brands that wish to prosper in the current market landscape. It instills confidence in investors and consumers, protects the brand's standing through the implementation of ethical and transparent practices, and emphasises a dedication to sustainable operations and responsible procurement. These components are not merely altruistic in nature; rather, they guarantee sustained profitability and triumph in a global marketplace where consumers are progressively relying on value-driven purchasing choices.



Examples of Good Corporate Governance for Beauty Brands

A number of beauty brands have established standards in the execution of sound corporate governance principles, effectively translating their pledges into concrete initiatives that deeply affect their stakeholders. The following are examples:


L'Oréal's Commitment to Sustainability and Ethical Practices

L'Oréal stands out for its ambitious sustainability initiatives, under its "L'Oréal for the Future" programme. The company has set forth clear goals to reduce its environmental impact, including achieving carbon neutrality across all its sites by 2023, 100% of the biobased ingredients for formulas and packaging materials will be traceable and will come from sustainable sources; none of them will be linked to deforestation. Moreover, L'Oréal is committed to ethical sourcing, ensuring that the ingredients used in its products are sustainably sourced and that the communities providing these resources are supported and developed. Transparent reporting and governance support this comprehensive approach to sustainability, showing how corporate governance can actively lead a company towards ethical and environmentally friendly practices.


The Estée Lauder Companies’ Focus on Diversity and Inclusion

The proactive implementation of explicit diversity and inclusion policies, which are fundamental components of their corporate governance framework, has been observed at The Estée Lauder Companies. The organisation has set forth objectives to enhance gender diversity in its leadership, with the ultimate goal of achieving gender parity in leadership roles by the year 2025. Additionally, the organisation prioritises racial and ethnic diversity by instituting initiatives to increase representation at every level. Estée Lauder demonstrates its dedication to fostering a diverse and inclusive work environment for its stakeholders through the incorporation of these policies into its governance frameworks and constant disclosure of its advancements in this regard.


Unilever's Sustainable Living Plan

Unilever, with its diverse portfolio of beauty and personal care goods, has been a pioneer in sustainable business practices. Unilever's Sustainable Living Plan seeks to divorce growth from its environmental footprint while improving positive social impact. The plan contains commitments to improve billions of people's health and well-being, reduce environmental impact, and boost livelihoods through sustainable sourcing and fair labour standards. Unilever's approach to corporate governance places sustainability at the heart of its business strategy, demonstrating how governance can propel a firm towards larger societal goals. As part of their commitment to 100% sustainable sourcing of one of their key agricultural crops, they aim to buy 100% paper packaging that comes either from well-managed forests or from recycled material. 


Aveda's Environmental Leadership

Aveda, with a significant focus on environmentally responsible packaging, is a pioneer in the beauty business when it comes to environmental stewardship. The business was among the first to package its products with 100% post-consumer recycled PET. Additionally, Aveda's mission encompasses product sourcing, energy utilisation, and overall environmental effects in addition to packaging. As a demonstration of its strong commitment to sustainability, its governance processes make certain that environmental considerations are taken into account in each and every action. Avenueda is committed to the use of ethical sourcing standards. As part of this, the company makes certain that the components that are used in its products are emphasised in a responsible and environmentally conscious manner, with a particular emphasis on providing assistance to the communities that produce these components. When Aveda works with local communities all around the world, the company frequently places an emphasis on aspects such as environmental sustainability, fair compensation, and respect for traditional knowledge.


Nykaa’s Sustainability and Social Responsibility

The governance structure of Nykaa has also been updated to include provisions for social responsibility and sustainability. A number of initiatives aimed at encouraging sustainability have been launched by the corporation, including a reduction in the amount of plastic used in its packaging and the promotion of natural and organic products. It is a reflection of Nykaa's dedication to having a good social effect that the company participates in community outreach and provides support for women's empowerment through its corporate social responsibility (CSR) projects.


These examples show how beauty firms can incorporate excellent corporate governance practices into their operations. These companies not only improve their brand reputation and consumer trust by concentrating on sustainability, ethical practices, diversity and inclusion, and responsible sourcing, but they also benefit society and the environment.



The Competitive Advantage of Strong Governance:

Effective corporate governance provides a competitive edge that can attract significant investment and encourage long-term brand growth, especially in today's highly scrutinised and competitive global market. This benefit is manifested via various channels:


  1. Attraction of Investment

The need for good corporate governance is becoming increasingly recognised by investors as a critical component in the investment decisions they make. When a firm has good governance, it demonstrates to investors that it is well-managed, that it uses effective risk management procedures, and that it is committed to engaging in ethical business practices and maintaining transparency. It is possible that this will result in a lower cost of capital because it reduces perceived dangers. Companies in the beauty industry, which frequently require considerable expenditures for research and development as well as worldwide marketing efforts, can significantly benefit from being considered a secure and reliable investment. Furthermore, investors who are looking to fund businesses that have positive effects on the environment and society are becoming increasingly concerned with sustainability and ethical standards, which are fundamental to efficient governance.


  1. Long-term Brand Growth

A culture of responsibility and continual development is essential for long-term growth, and strong corporate governance helps to foster such a culture. Companies have a greater ability to successfully manage problems and grab opportunities if they take the necessary steps to ensure that their decision-making processes are in line with the strategic objectives and ethical standards of the organisation. For instance, governance structures that incorporate stringent sustainability norms have the potential to stimulate innovation in product creation and packaging, which can appeal to consumers who are environmentally sensitive and open up new market sectors.


In addition, a dedication to diversity and inclusion can boost employee satisfaction and innovation, which ultimately results in improved product offerings and a staff that is more excited about their opportunities. Because of these factors, the brand is able to be robust and adaptable, which enables it to maintain growth over an extended period of time.


  3. Global Market Positioning

When it comes to the global market, businesses are frequently held accountable not just for the quality of their products but also for the way in which they conduct their business. Strong governance positions a brand favourably by demonstrating its adherence to global norms of ethics, sustainability, and social responsibility. This creates a favourable atmosphere for the brand. This is of utmost significance when businesses choose to enter new markets or engage with international partners, both of which are situations in which the expectations and legislation regulating the behaviour of corporations might vary dramatically.


In markets that are getting increasingly crowded with items that claim to be "green" or "ethical," having a reputation for solid governance can also give an competitive advantage. When a brand's governance practices are open and accountable, it has the potential to stand out from the competition and appeal to distributors, retailers, and customers who want sincere commitments rather than merely superficial statements.


To sum up, efficient corporate governance is not merely a statutory necessity or a tool for risk management; rather, it is a strategic asset that has the potential to entice investment, propel long-term growth, and position a brand in a favourable manner in the global market. It is impossible to exaggerate the relevance of this asset for beauty firms that operate in an industry that is just as much about perception as it is about products.


Conclusion

Corporate governance is a fundamental pillar for beauty brands, and it plays an essential part in determining the growth, reputation, and long-term viability of these brands in a sector that is extremely competitive. It is impossible to emphasise the significance of strong corporate governance for businesses such as Nykaa, which has already established a considerable footprint in the Indian beauty market and is now gaining interest from all over the world. Not only does this ensure that the firm continues to be committed to ethical principles, transparency, and social responsibility as it expands, but it also helps to strengthen the trust that investors and customers have in the organisation.


As Nykaa continues to attract interest from around the world, the company's commitment to upholding good governance principles is expected to bring about a number of further advantages in the future. Among these are efforts to entice additional investment from investors from around the world who are searching for businesses that have business strategies that are both sustainable and ethical. Nykaa's aspirations to expand will also be supported by strong governance, which will assist the company in navigating varied regulatory contexts and cultural expectations, making it easier for the company to enter new markets.


Furthermore, a commitment to corporate governance is in line with the growing demand from customers for businesses that place an emphasis on diversity, ethical sourcing, and sustainability. Not only does this alignment assist in retaining and developing its consumer base, but it also places Nykaa in a position of leadership within the beauty industry in terms of fulfilling its corporate responsibility obligations. As Nykaa continues to advance, the company's commitment to governance will play a significant role in fostering innovation, boosting its global competitiveness, and ensuring the company's continued success in the ever-changing landscape of the beauty business.


Our Directors’ Institute- World Council of Directors can help you accelerate your board journey by training you on your roles and responsibilities to be carried out in an efficient manner helping you to make a significant contribution to the board and raise corporate governance standards within the organization.



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