Mentoring independent directors can improve corporate governance
Independent Directors (IDs) have a massive responsibility to protect the interests of corporate stakeholders, and more specifically listed companies. The very purpose of credential induction is to provide professionally competent individuals with no direct connection to the business to ensure that they can contribute without bias to the sustained growth of the business. The wisdom and domain knowledge expected of them may not benefit listed entities, defeating the very purpose of their induction, unless IDs have a keen interest in sharing their knowledge. through deliberations at board level. The criticality of their role in maintaining the corporate governance (CG) standard of the company has been widely debated, discussed and their position on the board has been brought into the public domain. Several important GC committees had emphasized their role and independence in intervening in the affairs of the organization. But the way companies’ debacles and irregularities in implementing CG repeatedly show up, they don’t do exactly what they’re supposed to do in many cases, of course, many do.
The continued passive attitude and indifference of IDs on the board is hurting the corporate sector in many ways. If their knowledge and experience are explored, companies can see new opportunities emerging. The ongoing investigation into the NSE roommate scam, the sudden resignation of the 3 ids from PFS, the sponsoring company of PTS India. Angered by CG’s developments, SEBI barred it from holding its board meeting to block the announcement of its third quarter results. Likewise, the resignation of Mr. Ashneer Grover, the co-founder and managing director of BharatPe from his position in the fintech company Unicorn, the alleged role of his wife in leading certain activities in his role are some of the latest additions to the long list of corporate sector failures to adhere to CG fundamentals.
There is no prescribed/established rigorous process or guidance for identifying credentials to select the right proven domain experts and monitor their performance after induction. They suddenly appear on the board because of some connection, perhaps through family members, known affiliates, prominent figures whose brand value could benefit the company, or people with multiple activities publicly recognized as eminent personalities. While exceptions are always there to create examples of good governance, such good conduct is not public knowledge unless it brings bad news. There are dozens of companies that have good identities and where CG is ingrained as a culture and doing very well quietly.
But some planted IDs more often ask for leave from the board of directors than to seriously attend the board of directors to intervene in a timely manner to protect the interests of the organization. Inducted ids with a slot-filling motto aren’t interested in understanding the entity’s business or trying to get into the intricacies of the agenda to see if they’re in the long-term interest. term of the organization. They are simply there to vote for key people without going into too much detail.
The management of such an entity prevails completely without any logical resistance or questioning by IDs. They have their way, sometimes even ignoring the principles of CG. There is also an increasingly well-known practice of not even recording ID objections/different views. Their silence or failure to consider their objection constitutes consent. It is only when bad governance reaches the halls of regulators that IDs hastily tender their resignations citing personal reasons and are accepted without delay to ensure that board irritants get out of the way. ‘themselves. Since the resignation of a director must be notified to the stock exchange, this becomes news. Everyone understands that no one would want to leave the position of ID unless the underlying issues reach a boiling point of conflict. Like what happened in recent cases.
Reinforcement of identifiers
The process began with the Department of Corporate Affairs (MCA) maintaining a pool of interested potential candidates for credentials with their knowledge of the classified domain. They are also tested to see that IDs have minimal knowledge of how to help grow a business as its ID. But it is not mandatory to choose identifiers in the panel. It’s time for MCA to process their data to see how many of their approved panel members could get a place on the companies’ board of directors as IDs. Very few could make it to the list because most of the identifiers in the table come from known sources or are drawn due to some interconnectedness, even if their knowledge and maturity is not adequate.
Companies can at least start a credential induction process and if they are not part of the MCA panel, they should be exposed to the test performed by MCA so that a minimum knowledge of CG is ensured. More than CG standards, they must understand the company’s business because they must question its management on strategic issues.
The way full-time directors/presidents/executive directors acquire domain knowledge and expertise, credentials must also necessarily be drawn through a selection process. They must have a proven knowledge of the company and its industry. After their induction, they should be exposed to leadership mentorship in CG processes, its implementation and its implications. It should be noted that the Banks Board Bureau (BBB), intended to select full-time members of the board of directors of public sector banks (PSBs), decided to mentor and train even the IDs to manage the nuances Of the industry.
Industry trends and the performance track record of PSBs point to the importance of empowering and enriching bank boards with their knowledge and experience. Taking inspiration from the developments and challenges of emerging financial intermediation, BBB has rightly introduced a comprehensive program – Directors Development Program (DDP), designed and articulated in collaboration with academics, industry experts and banking forums. The nine-month program is designed for directors of PSOs and financial institutions with the primary objective of improving director effectiveness to increase their impact on boards. Other industry affiliates should learn from the initiative to improve and rejuvenate the ID framework so that their leadership role and expertise in the field actually serve the intended purpose. In the future, MCA/SEBI/RBI and other key stakeholders may need to institutionalize a process to review the performance of IDs and ban them if their performance is not up to par. The incentive for good performance and the discouragement of their entry as identifiers in the company’s boards of directors must be institutionalized to ensure rigor in the implementation of the CG both in letter and in the mind. Mentoring credentials can be a strategic differentiator in creating a sustainable CG culture in the corporate sector.
The opinions expressed above are those of the author.
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