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Anil Rathor

A GRAND debate has been on to ensure good governance and value-based business norms, to protect the small shareholder and the employee and dilute the power of vested interests. SEBI prescribed certain guidelines on the structure of the boards to provide a minimum representation of external directors.

Prior to this requirement, the majority of boards used to be packed with family members and retired officials. There was little weightage on their commitment or capability. This led to centralisation of power and authority. The end became supreme and the means to achieve the end was given the go by. So much for corporate governance.

As a result of liberalisation and the dismantling of boundaries, world trade norms demanded uniformity in practices based on transparency, devoid of red tape. The consumer too played a role in accelerating this transition. The businesses in the developing countries had to fall in line.

High priority was given to integrity, transparency and people issues, covered by the term, `corporate governance.' Company norms were reviewed and revised. The new policy was to ensure that the shareholder and the consumer did not get a raw deal. The series of scams, frauds, siphoning of funds, insider trading... hastened the authorities to act. Various measures were debated and legislated. SEBI framed guidelines in the interest of the investor and from there arose the statutory need for a board structure necessitating external board directors.

The rapid development of the IT industry in India and its dependence on the American and European market, listing on the Nasdaq and other stock exchanges made many companies see this as a business advantage over others. The common motive was to quickly get a buy-in from their overseas clients. Many ignored the processes and actions required for a sustainable model.

The attitudinal change, education and awareness, infrastructure and a continued commitment from the top were not given the importance they deserved. There is a need to prevent this practice or else we will build a corporate society that may not be sustainable.

One of the responsibilities of the board of directors is to ensure that education and progressive implementation consitute the model, not regimentation and newspaper publicity. The Western corporate world has been shaken up by Enron, Anderson, and others. India is still on the learning curve. It has been reported that India has been rated marginally less corrupt than Bangladesh. Unless corruption is rooted out from society and politics, there may not be substantial progress in this area.

The CII has done some painstaking work in the field. But even with all the high level seminars and interactions, there are few changes. Each CEO has his own agenda and there are few who have demonstrated a realistic approach.

The contemporary model for board directorship is changing slowly. There is a realisation that outside directors have to fulfil specific obligations towards the companies they represent.

Value addition and commitment are a must. Professionally skilled and reputed persons are needed to guide the companies towards sustained and healthy growth in a highly competitive environment.

More important is drive, leadership, knowledge sharing. Companies may have to allow their employees to sit on other boards provided there is no conflict of interest.

Recently, the SID (Singapore Institute of Directors) suggested higher compensation for non-executive directors in view of the increasing demand on their contribution and time.

These responsibilities will increase as the corporates move towards more transparency and disclosures. Even in the current climate of right sizing of companies around the world, independent directors will be in demand. The companies that have hired persons with little ability to contribute will soon be forced to chart out a new path.

(The author, an industry analyst, is a senior director, Quorum ITP Worldwide. He can be contacted at rathor@quorum.co.in)

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