The brains behind

A sagacious, suave lot, mature with their well-nurtured experience and articulation, the think-tank that drafts well-calculated destiny of an organisation sitting across an oval shaped mahogany table is the most commonly depicted picture of a board meeting. The participants or the directors are all the industry juggernauts who hold authoritarian right to control the CEO’s over zealous activities, who look after the interest of the stakeholders and decide on stock trading, finance, merger and acquisitions. What’s the core value the board of directors add to an organisation?

Overseer of business operation

Raajeev Batra, Executive Director, Governance, Risk & Compliance Services, KPMG outlines the role of the board of directors, “At a high level, a company’s board oversees its operations, guides strategy formulation as well as execution and ensures that all stakeholders’ expectations are met.  It primarily focuses on providing guidance on several key issues like selecting a senior management team, including CEO. 

In case of larger, listed companies, it becomes a strategic and statutory imperative to appoint an independent board comprised mostly of non-executive directors.  In this case, most of the executive responsibilities are delegated to a team of senior management personnel and board oversees the performance of these personnel.

However, at most Indian companies, the role of a CEO and the role of the board’s Chairman is not segregated.  In such cases, independent directors should take charge of monitoring the performance of the Chairman-CEO by appointing a Lead Independent Director who liaisons with other board members and Chairman-CEO for this purpose”.

Vikram Bakshi, Managing Director, McDonald’s India, who himself serves on board, says, “While majority of the board members represent the shareholders, I feel it is the independent directors that have come to represent the interests of stakeholders. They are not just watchdogs; but they look after the conscience of the organisation. They provide independent perspective without any bias or prejudice on the opportunities and challenges that exist in front of the organisation, as they do not have any material interest with the company. With the introduction of clause 49 on corporate governance, the role of independent directors has become far more significant. And I feel it is one of the landmark laws that are bringing the change in the ways the business is done in our country.”

How does a board of directors discharge its responsibility of taking care of stakeholders’ interests? Generally, a board’s direct involvement with key stakeholder groups might be limited to the Board Chairman and/or Audit Committee Chairman.  In extraordinary circumstances a wider board may be involved in engagement activities and communication.  However, management is now turning to directors to tap expertise and relationships and facilitate engagement, advocacy and lobbying with key stakeholders.  Harish Bijoor, CEO, Harish Bijoor Consults Inc, suggests, “It is important for corporate boards to think expansive. It is important to start with the environment at large, society in particular and consumers as specific beings. In addition, boards need to keep every other stakeholder in sync with the purpose of the organisation.” Reiterates Batra, “Companies could consider developing a stakeholder engagement plan that could include establishing policy positions, receiving appropriate information on stakeholders, responsibilities for developing relationships with agreed accountabilities, monitoring concerns influences and sensitivities, strategies for changing stakeholder decision making, physical meetings and site visits, and appropriate, open and transparent reporting and communications. Stakeholder engagement plans should be ultimately linked with strategic planning, risk management and compliance programmes and aligned with business reporting and communication to be effective.”

How frequently they catch up?

As per SEBI’s listing agreement, boards and audit committees of listed companies in India should meet at least once in a quarter.  Apart from regulatory requirement, several other factors, such as size of the company, industry and also its current financial health, dictate the frequency of board or board committee meetings. “Unfortunately, a very few Indian companies go beyond the statutory requirement of four board or audit committee meetings a year.  A 2010 global KPMG-Audit Committee Institute survey reveals that while 51% of the global companies hold more than six audit committee meetings in a year,  a very few Indian companies hold more than five such meetings,” Batra informs.

Diverse skills make the best

Though there is no specific guideline for appointing a director, ideally, it should be delegated to independent nomination or corporate governance committee. The committee should ensure that there is an adequate level of diversity in terms of skill sets, experience, age, gender, personalities, etc. Diversity brings in peripheral vision and different perspectives which is a necessary ingredient in implementing the company’s strategy.  For instance, appointing a chemical engineer on the board could be critical for a pharmaceutical company. At the same time, having people from backgrounds in economics, finance, marketing, etc will help the board expand its horizons, apply their cross-functional learning, and better identify and mitigate pitfalls in the company’s strategy.

It should be an impartial affair while selecting a director who can voice his or her thoughts without feeling compulsion. “While more professionally run bigger companies are today reasonably neutral in the kind of directors they bring in,  smaller companies still write a self-fulfilling prophesy of doom for themselves by bringing in directors who are just too close to the business,” Bijoor opines.

Confidentiality: a part of ethics

The board director is expected to maintain a very high degree of confidentiality in his dealings. When on different boards, it is important not to share any information that belongs to one with another. This very maintenance of confidentiality board to board enhances the director’s reputation over the years.  Batra explains, “The best way to maintain balance between activities of different organisations is to ensure that the director restricts his/her directorship to a few companies.  The proposed Companies Bill seeks to put a limit on the number of directorships (public/private companies) a full-time or an independent director can hold to seven.  However, according to Audit Committee Institute even seven is high.  Its 2010 survey suggests that only 5% of the global audit committee members are audit committee members in more than five companies.” On the issue of confidentiality, typically, companies ensure that their directors, specifically independent directors, are not on the board of direct competitors. Further, the law of the land restricts directors from publicly discussing unpublished financial and non-financial information. 

Why to serve on board?

Bijoor, who is on quite a number of boards, thinks that such experience adds to his personal exposure for sure, but does not enhances career move. “I am dealing with issues at the apex point of different organisations. One day I could be dealing with issues in core technology and on another I could be dealing with media and entertainment or on the core issues of a durables company. This exposure is value-add.” Batra views, “Board experience would expose an individual to the other company’s good practices in governance, risk management, etc; broaden his knowledge horizon and help him look at the bigger picture; enhance his skills on probing and challenging decisions objectively and constructively and sharpen his interpersonal skills in dealing with a diverse group of people.   Ultimately, it would groom him take up more challenging roles, such as a managing director or chairman in his company or any other company.”