If you ask someone to name a few corporate Humpty Dumptys that have had a great fall, odds are that they will rattle off 10-12 names in under a minute. Ask them to name trusted organisations, and their job becomes must harder. Truly, it should not be this way. And surely, if something big was brewing, SOMEBODY had to know, or at the very least, pretended not to know!
In recent memory, Satyam was first to fall, closely followed by Anderson + Enron, DHFL, Nirav Modi, Kingfisher, the list goes on. Corporate India’s history is rife with spectacular examples of collective neglect, sheer ignorance or personal greed that has brought once formidable organisations tumbling down. And much like in Humpty Dumpty’s case, all the accountants, auditors, legal eagles and bureaucrats couldn’t undo the damage or reign in the chaos that followed.
Today, in the wake of shareholder wrath and massive losses incurred by firms that have played fast and loose with their financials, statutory obligations and stakeholders trust, the MCA, SEBI, etc have come together to create a web of laws and mechanisms that test the strength of the board of any organisation. If you’re listed abroad, you can double or even triple the obligatory and statutory requirements. All this, coupled with a pandemic, cyber-threats and heightened customer, employee and shareholder activism means that being a Director is not a job for the faint-hearted.
And yet somehow, the plethora of measures is inadequate in preventing the scams that seem to occur with alarming frequency. While our regulators are playing catch up, the trust deficit between governments and businesses gradually widens. On the face of it, the choices for a solution to prevent wrongdoing appear paradoxical. Intervention by government, when perceived excessive, might lead to capable people withdrawing from the boards. On the other hand, a degree of detachment, with the intent of regulating with minimum government controls, could cause more mischief. Talk about being stuck between a rock and a hard place!
So, what could be the solution? I believe it lies in evolving an ‘early warning system’ that adopts a holistic and long-term perspective towards governance; one designed to spot small cracks before they turn into giant fissures. After all, if one strives for the ‘minimum government, maximum governance’ model, then it must be complemented with self-governance driven by an engaged board of directors.
Boards, however, are unique creatures; no two are the same. The dynamics between members, their age and experience, and the size and composition of the board along with several other factors all weigh in to make it function distinctively. Research has shown that there is no magic formula that makes a board great. However, there are some practices and cultures that are ubiquitous in engaged, high-performing boards.
- A chairperson who draws out the views and unique skill sets of every member, facilitates debate and discussion, supports new ideas and encourages independence.
- Board members who bring diverse experiences and skill sets to the table and actively leverage these to support their points.
- A culture that encourages directors to be prepared for meetings and to ask insightful questions that seek to go beyond what is presented to them by various teams and committees.
- A desire to move beyond merely complying with the baseline regulations, to actually guiding the organisation into a space of leadership that sets the bar for the industry.
- Regular board evaluations that measure impact and create a feedback loop that enable the board members to refine and course correct.
- Like all high-functioning people, board members too must move up the learning curve; constantly updating their knowledge and skills so that they are poised to anticipate and tackle the challenges thrown their way.
Its time to for chairpersons to take their boards from passive, ‘resolution-passing’ bodies to deeply engaged teams that are able to predict cracks and build resilience. Hopefully, vigilance and vibrancy at the Board level will prevent us from unleashing any more Humpty Dumptys on our unsuspecting consumers, shareholders and policymakers.