Indian Boards: Relics And Realisation For Real Governance

Indian corporate governance regulations have been shaped by much of practices in the U.S. and U.K. markets, where bulk of listed entities have institutional ownership. One might observe that on aggregate, the top 500 Indian listed entities would have similar board composition as their western peers, but with promoter influence or dominance.

India’s corporate landscape is a unique one, with family-owned businesses of all sizes dominating the market, both in the listed and unlisted space. This distinct feature of the Indian economy presents a challenging backdrop when it comes to addressing any improvements to its corporate governance.

Despite having a two-year lead time to comply with certain corporate governance regulations, the Indian corporate lobby utilised its clout to successfully derail the regulatory provision that mandated the separation of the chairperson and managing director roles.

Resistance to change and the influence of entrenched interests within the corporate sector, further complicates efforts to enhance governance practices. While it’s not difficult to establish structures that meet regulatory standards, the moral tick mark for intended behaviour goes beyond mere compliance.

Family-owned businesses in India often carry a deep-rooted ethos of loyalty and personal relationships. It is not uncommon for promoters to offer board positions to those who have assisted them along the way, viewing it as a token of appreciation. These individuals, often hailed as experts from a past era, are seen as valuable assets, but the inherent dilemma arises when their roles compromise the true principles of corporate governance.

With some outliers, most of the 'relics of the past' may have served admirably in their respective domains, but the rapidly evolving business landscape presents a host of unique challenges. The pace of change, the demands of a globalised market, and the intricate regulatory environment are starkly different from the times when many of these individuals made their mark. Today’s businesses require agility, adaptability, and a deep understanding of technology and innovation, and importantly, the new rules of engagement of working with professionals and younger workforce, qualities that may elude these well-meaning veterans.

Moreover, the issue extends beyond expertise to questions of independence and impartiality. The role of independent directors is of paramount importance—to champion the rights of minority shareholders and ensure their interests are meticulously safeguarded.

Yet, an increasing number of these directors appear to have deviated from their fundamental duty, veering towards serving the interests of promoters and major shareholders. This poses a direct challenge to the essence of their roles and responsibilities. Equally disconcerting is the grandiloquence exhibited by some of these individuals when discussing the standards of corporate governance. It is worth questioning whether their eloquence conceals a disconnection from the very principles they are meant to uphold, or if it is merely a means to enhance their employability rather than a sincere dedication to shareholder rights.

Transitioning from gratitude to governance is a simple conundrum; wherein the path to progress depends on a crucial realisation. The paradox centres on the hope that promoters recognise the inherent benefits of boards capable of adding substantial value to their businesses. It’s essential to shift the perspective from viewing boards as personal networks to understanding them as strategic assets.

One need not stress the need for self-governance and probity at the board level, where directors should exemplify the highest standards of ethics and integrity. The days of the "stiff upper lip" syndrome, where directors on enterprise boards maintained an air of unwavering silence and decorum, are long gone. In the modern corporate landscape, directors are expected to be vocal and forthright in expressing their views.

Effective corporate governance thrives on open dialogue, constructive dissent, and the courage to voice concerns, ultimately leading to more informed and accountable decision-making. Silence in the boardroom can be detrimental, potentially leading to decisions made in a vacuum, disconnected from the diverse expertise and perspectives directors bring to the table. It is not about decibels, but about avoiding any debacle.

In the face of an unimaginable surge in data, digital technologies, and their inherent complexities, the rapid pace of change in the contemporary business world is nothing short of astonishing. The wisdom and insight of directors from a different era may no longer be applicable to the multifaceted challenges and opportunities that companies grapple with in this data-driven, tech-savvy era. The game has evolved, and to succeed, boards must navigate this intricate digital pitch with a new set of skills and strategies.

The intent is not to diminish their achievements and reputation, but to call for a more forward-looking approach to preserve the integrity of governance in the contemporary world. Consider the case of a seasoned expert with four to five decades of experience—while revered by the board and management, their at-times outdated perspectives amid rapid business changes, market changes, and evolving regulations create a perilous scenario. Board reliance on their expertise without assurance of its relevance today constitutes a severe threat to effective governance. Yet on paper, the imagery of the individual would be high.

As India’s economy continues to evolve and expand, the governance framework must adapt to ensure that Boards can collaboratively, collectively and effectively address the multifaceted challenges of today’s business ecosystem. It’s time for the irrelevant ones to gracefully call it a day.

Dr Srinath Sridharan is a policy researcher and corporate advisor.

The views expressed here are those of the author, and do not necessarily represent the views of NDTV Profit or its editorial team.