Right-Fitting Corporate Governance For Entity Life Stage

In the domain of corporate governance within emerging markets like India, a one-size-fits-all approach proves inadequate. Domain is characterised by the coexistence of multi-generational businesses, established brick-and-mortar businesses, and a plethora of nimble startups, encompassing both listed and unlisted entities.

Corporate governance serves as the bedrock upon which sustainable and responsible business practices are established, but its nuances evolve significantly based on the developmental stage of the entity in question. Corporate governance constitutes the intricate framework of rules, practices, and processes that steer a company's direction and control. Its primary objective is to ensure accountability, impartiality, and transparency in a company's operations, safeguarding the interests of all stakeholders, including shareholders, employees, customers, and society at large.

For the Indian market, with a significant influence of family businesses, we envisage a different perspective: the 4S model of entity life stages: startups, scaled enterprises, stressed companies, and succession planning in family businesses. Each of these stages necessitates a tailored approach to board engagement and demands a unique set of competencies. Beyond the regulatory obligations of boards, their roles diverge significantly across these four distinct categories, encompassing various forms of engagement, commitment, conversations, issue resolution, and more. Each stage requires a specific set of capabilities and board enablement.

Attempting to transplant a personality trait from one board type to another without a comprehensive evaluation of that trait's compatibility and competencies, is a misguided endeavour. While board diversity undoubtedly holds significance in fostering diverse perspectives and experiences, it must be meticulously balanced with relevance. The entity's life stage needs a certain expertise, commitment, and engagement levels of boards.

In the vibrant ecosystem of emerging market startups, corporate governance might appear as a secondary concern amidst the whirlwind of innovation and expansion.

However, it is precisely in these early stages that robust governance practises should take root. Directors in startups ought to embody an entrepreneurial spirit, a penchant for risk-taking, and a profound industry understanding. Their task is to offer guidance without stifling creativity, emphasising compliance while preserving room for adaptability. Occasionally, directors may also find themselves playing mentor roles without compromising their focus on governance matters.

As companies in emerging markets scale, the intricacies of governance grow exponentially. Directors in this phase require a discerning eye for strategy, the ability to balance short-term gains with long-term sustainability, and an understanding of global market dynamics. They must ensure that the entrepreneurial vigour driving the firm's growth aligns with the need for structure and compliance.

Moreover, they must ensure that succession planning is deliberate and that clear roles and responsibilities are delegated to second-tier leadership for their professional growth and engagement.

During the turbulent phase of corporate distress in emerging markets, directors play a pivotal role in steering the ship away from treacherous shores.

In this context, competences in crisis management, financial restructuring, and risk mitigation are indispensable. Directors should possess the acumen to make difficult decisions while safeguarding the interests of all stakeholders. Additionally, the board's ability to hold leaders accountable and objectively assess leadership performance is paramount

Family-owned businesses constitute a large proportion of the emerging market landscape. Succession planning in family-owned businesses within emerging markets requires a delicate balancing act.

Directors must blend the wisdom of experience with forward-looking perspectives. Competencies include conflict resolution, the ability to facilitate open dialogues, and the patience to navigate the intricacies of familial dynamics.

Across all these stages, an unwavering commitment to ethical behaviour and integrity remains non-negotiable. However, director engagement should be finely tuned to the unique challenges and opportunities presented by each entity stage.

Boards, as stewards of corporate governance ideals, must ardently advocate for the right blend of competencies at each stage. They wield the power to shape the culture and values of the companies they oversee, steering them towards a broader purpose that transcends mere profit maximisation.

Having the right-minded board member with precisely aligned skills and competencies for the entity's stage is a prized asset for any organisation within emerging markets. It surpasses the notion of merely having an experienced board member; it revolves around the type and quality of relevant experience. Their expertise facilitates more informed decision-making, enhanced governance, and a heightened ability to navigate the complexities inherent to that stage of the entity, ultimately contributing to the organisation’s long-term success and sustainability.

Shailesh Haribhakti is an independent director on corporate boards, and Srinath Sridharan is an author, policy researcher, and corporate advisor.

The views expressed here are those of the author and do not necessarily represent the views of BQ Prime or its editorial team