Challenges & Changes in Board Rooms
To ensure a fair play behind the closed doors of Board room, it was sufficient that anyone without any pecuniary relationship could become an Independent Director. But with the advent of recent amendment, the situation doesn’t appear to be so.
As we all know, the economical ride currently is not so smooth. We, being one of the fastest growing economies in the world, are subject to a lot of challenges too. The situation is quite dynamic and promising as well. Though the analysts highlight the tantrums of the current economic scenario, the long-term growth perspective of the Indian economy is another positive. The young population, corresponding low dependency ratio, healthy savings mindset and the increasing integration into the global economy are great confidence builders.
In this whole economy-landscape, the role of corporate sector is quite significant. While the contribution is approximately 17% by Agriculture & Allied (Primary sector) the remaining 83% is by the corporate (combination of Secondary and Tertiary sector). Today the corporatization is penetrating into the primary sector as well.
If it is corporate; it is company; it is the Board and the Board of Directors. The Board room dynamics have created mixed opinions and as a result a greater insistence on the Governance. Thanks to the recent amendments in the Companies Act which ensures the going further is not going to be easy for the easy-goers.
So far it is just the “non-pecuniary relationship” which needs to be taken care but now it is also the capabilities that matters. One, who has served as a Director on the Board of a listed public company for a period of 10+ years OR on the Board of an unlisted public company with a paid-up capital of 10+ crores, only are considered as competent enough to hold the office of the Independent Director. All the others, including the ones who are aspiring, have to Register themselves for a fee and take up an online proficiency self assessment test. The Registration and the fee to be paid is mandatory for all those who are exempted from the test as well as the ones who need to take the test.
It is certainly a move forward in ensuring better governance and may be an effort to curtail shenanigans inside the closed Board Rooms. However SIGNIUM India’s Board Services which is part of SIGNIUM global Board Services practice group (Board Search / Board Assessment / Board Advisory) looks at it differently and prefers highlighting a flip side in this. My discussion yesterday, with a seasoned ID on the Board of a Technology company gave me this compelling reason why I should write this article.
In the increasingly uncomfortable Board Room scenarios, the genuine IDs are already in a greater dilemma to continue further. In this context a condition of Registration; Fee and an Online Test are certainly not motivators. Most of these genuine IDs are cherished with thick of wisdom and experience and professional maturity. Though there is a meager sitting fee, they approach this role only with a probono mindset. Having said this, the risk level they are exposed to is huge comparing to the returns what they gain.
While the concerns are appreciated, in the interest of building a greater healthy economy and society, I would like to invite every single serving Independent Director who is bitten by this withdrawal bug to look at it from a different angle and avoid creating a void that could breed shenanigans .
Most of the engineered flaws within the closed Board Rooms are quite situational and hence the role of the IDs who are professionally matured, assertive, articulative, practical and absolutely concerned for every stake holder is becoming quite critical.The availability of qualified Independent Directors are going to be fewer comparing to what we have today and more & more competent, genuine and socially responsible Independent Directors are the need of the hour.
It is a very interesting article. I would not look at being an Independent Director as a probono service. In fact, if we want the capable and experienced people to offer their expertise, they should be adequately rewarded and encouraged without regulatory scares. There should be complete immunity to the IDs from the negative performance of the co as the IDs are not the part of the executive decision making process. Then only people will start looking at taking up ID as an full time occupation similar to how a practicing professional approaches his profession. It will take time to mature. But the immediate requirement is the enabling environment.
IAAS(Retd.), CFA, AICWA Financial Analyst and Management Consultant, Certified Independent Director
4 年Insightful article.
Director
5 年Silver lineing for ID's is that more proffesional and qualified individuals will be at the helm! Need of the hour. And most important is this gives ID's the motivation to discharge their fiduciary duties.
Retired IT Professional
5 年Cannot be explained better than this. ??
Sr. ICT Aviation Consultant and Advisor - Airlines and Airports - Worked on Green field Airports
5 年Dear Xavier Your article is timely. While there can't be any two opinions w.r.t. need for Board Members Industry Domain experience to be a singular positive contributor to Board's deliberations and assessments of proposals and Governance and Risk Mgt, a diverse Board, would bring in more value proposition. Be it a Tech Co or FMCG or Fin Tech et all, a system is yet to evolve to spot on required and diverse skill sets in a board. Also for entrants to try Board positions after a long stint in sr mgt and Operational slots, is a difficult proposition. A recent report also suggest that many Cos are yet to comply to on-board Independent Women Directors. I reckon we need to go still some distance …..