You want the truth? You can’t handle the truth!
These famous lines delivered by Jack Nicholson in the classic 1992 film, ‘A Few Good Men’ epitomise the classic courtroom battle between Colonel Jessup, played by Nicholson, as he doggedly justifies the sacrifice of means for the desired end; and Tom Cruise, playing Lieutenant Kaffee, who adamantly demands a difficult truth. It’s a gripping scene, highlighting the differing values, priorities and perspectives between those tasked with getting results and those with oversight for that performance. Drama and designations notwithstanding, this could well be a story that lends itself to not only courtrooms but Boardrooms too.
At the end of the day, the burden of oversight lies with the Board. This means that though there are several Board Members who do not spend more than a few hours a month on the company’s matters, they are morally and legally accountable for the actions taken by them and others in the organisation. Directors, through regular Board and committee meetings, reports, conversations with each other and the management are supposed to know enough of the company’s goings-on to make decisions and maintain accountability.
This ideal, however, is far from the truth in most organisations. Board members, particularly non-exec members, often opine and vote on matters without the complete picture of the matter at hand. Instances of underestimated risks, interested parties, undeclared liabilities, etc. - as has happened in Enron, Satyam, Kingfisher, IL & FS – make Board members quake in their boots. Apart from the deathblow, these factors can deal to companies, not knowing the material and pertinent information can cost directors their valuable reputations.
This ‘Information Asymmetry’ between the operating management and governing boards has become even more of a challenge nowadays. With highly aware stakeholders, continuous social media assessments and activists always on the prowl, organisations are under perpetual scrutiny and woe is the Board that must play catch-up. Forward-looking, engaged Board members are now hungry for information and willing to walk the extra mile to get it.
But rebalancing this asymmetry requires a nuanced approach. There is no cookie-cutter structure – it must be curated for industry, regulators, environment and of course, the organisational culture itself. Certainly, Board members who wish to know ‘what’s really going on in the organisation’, can get into the thick of matters, understand them from all angles. Often this entails a journey outside the Boardroom, where agendas and resolutions are king, onto shopfloors, offices and warehouses. While these efforts truly give Board members the power and perspective to opine and decide better, they must be regarded in balance. Board members stepping outside of the Boardroom would be well advised to follow Ram Charan’s famous diktat about ‘when to take charge, when to partner and most importantly - when to stay out of the way’ as described in his book ‘Boards that Lead’.
A few approaches that may be used by the Boards and organisations to create the balance with being disruptive could be:
· When in doubt ask the Chairperson; after all he/she is the Board authority with the overall view of the Board, stakeholders and management.
· Empowered Company Secretary; it’s a clearly regulated role and the CS is also a Key Management Personnel (KMP) of the entity. It’s time to empower them to go beyond administrative duties so that they can add value to agenda-setting and liaise positively between the board & management.
· Develop a Board Office with a capable team: Given the volume and intensity of issues that must be tackled by Boards, there might be value in creating a Board office of 2-3 individuals tasked with keeping Board members abreast of such issues.
· Create direct access: Global governance practices and increasingly even Indian regulators are encouraging Board members to have direct access to certain key executives heading audit, risk, compliance, technology and HR functions.
· Governance by walking around; be it in offices, factories, warehouses or outlets so that Board members can directly interact with management and stakeholders. Care must be taken to ensure the visits are not curated, but truly reflect the entity or stakeholders state and relationship.
· Role of different Board functionaries: The MD and Whole Time Directors (WTDs) are responsible for the operations and management of the company’s business in the Boardroom, while Independent Directors (ID) maintain a more distanced purview. It’s imperative to set the expectations of each.
· Access to each other and management in between meetings: Technology is our friend when it comes to bridging distances between Board members and management. Candid conversations and deep dive debates will build camaraderie and strengthen the Boardroom culture!
· Training budgets & Expert advice can arm the Board in its learning agenda and ready them for longer-term issues. Access to experts and consultants on matters like reputation management, succession planning, sustainability, etc. help Board members brainstorm and understand emerging trends better.
Restoring symmetry of information between Board and management is a big ask and a multi-layered task, towards which various agencies have role to play. Board members must be willing to invest their time and interest, management must make information easy and efficient to access and the Chairperson and Company Secretary should lead these efforts from the front!