Independent directors are isolated on the board: Andrew Kakabadse
In an interview, the Henley Business School professor also speaks about the need to train women for board positions
New Delhi: Andrew Kakabadse, professor of governance and leadership, Henley Business School, was a board member of a promising start-up that went bankrupt.
Kakabadse admits he had a role to play in that as he did not quite know what he was doing there. Since then, he refuses to be a part of any start-up. “I am wary with start-ups and what a board can do. Boards by nature are there to restrict,” he says.
Kakabadse is among the leading management thinkers, and is currently involved in a major world study of boardroom effectiveness and governance practice.
In an interview, Kakabadse spoke about the need to train women for board positions, the changing role of independent directors, empowering minority shareholders and why start-ups should initially stay clear of setting up a board.
How should we handle the situation of not having enough women on company boards?
This problem exists everywhere and not related to one country alone. I don’t think any country has dealt with this situation as good as Australia. Others have merely set targets for themselves. So, instead of setting targets like the Britishers, French or like the Scandinavians did, the only targets that they (Australians) set is how many women they prepare for boards. So, the Australian Institute of Company Directors together with the Australian federal government identified 50 of the top chairmen and each chairman had to mentor two people.
So, there were 100—98 were women and two were men.
Those 100 were mentored over 18 months period so that they could really become the outstanding director of the future. So, there are 98 outstanding women. Let me tell you these women are impeccable. They are able and ready. The Australians never went for the political correctness of if we get more women on board, we have diversity. What they did was, they created diversity of thinking. The question is how many nations are already doing that?
Do you think India is ready for such a drastic step?
If we go to Australia before this whole thing started—how many women were on boards... probably 2-3%. The argument then was, our women are not ready. In 18 months, you found the number of women ready.
For me it is not about ready or not. Why isn’t anybody ready for development? All you need to have is courage, guts, conviction to know why are you doing that? So, anybody is ready in my view. There is no problem. If your target is to develop the 100 women, who by nature can compete for board positions more than the men.
That is the way forward.
Another aspect is not having enough women in corporate. Therefore, companies are forced to get women from non-business areas such as art, culture, etc.
What you find in India now is no different from France, America, Australia. What you find at the bottom level, there are more women than men and as you go up after about mid-management level, there is a large departure of women.
So, that is a universal phenomenon. But that’s about the corporate world. But if you go to consulting, law, accounting firms, it is not the same. You find an increasing number of women are partners. An increasing number of women are senior managers, just below partners, and these are the firms which have more flexible way of working—like you can work at home one day a week, etc. So, I am beginning to see there are many talented women available. You need not go to arts and other places where there are more women because of nature of their work.
Has the role of an independent director changed? If yes, in what way?
Yes, it has changed. The role of the independent director has changed from the perspective of being independent; they were not independent before.
Whether that has worked or not is another question but the role has changed. Why have them when whole purpose of the board is to be independent in the first place? So, if we have independent directors when the other directors are supposed to be independent, (that means) the board is not working.
I did a study of independent directors. In England, they would be called senior independent directors, in the United States, you have lead independent directors. What are my findings? They have the most vulnerable role on the board.
Why? Because a very senior independent director said to me that working in a board of a company that had all sorts of problems, those problems are going to affect the share price and the future of the company. So, I asked him what did you do? And he said I don’t know. He said, ‘If I speak up soon share price drops, the company resources go down, the people get unemployed. If I don’t speak up until this issue becomes public, share price goes down.’ He said how can I act independently when this board is not independent in thinking.
So, I am deeply worried of the role of independent directors. Independent directors are like any other directors on board—isolated, emasculated, and not making any impact on the board.
Would a government appointee be of any help?
I have not seen that work. I have looked at the nuclear industry. I have looked at some of the defence industry companies, where they do have company representation. By and large, what it tends to do rather than prevent bankruptcy, it tends to restrict conversations.
The real conversation takes place out of the board room, not in presence of this government representative. So, the issues are addressed covertly.
The government representatives are more concerned about the bankruptcy, the government’s agenda and reputation; so they are likely to be more conservative.
You cannot escape the fact that a good board director is one that probably has a portfolio of three-four good board directorships and that’s it.
You cannot escape the fact that most board directors need to be paid more. It’s a professional role. Whatever else you do, if you don’t address those issues, it’s not going to work.
How should we empower minority shareholders?
There is no way other than regulations. Not government regulations, telling a board director how they should be going through a process but where genuine protection is needed. That is a regulation. It is a board responsibility and that board should be able to challenge investors on that particular point.
How should start-ups constitute their boards?
I was involved with a start-up and it was in the IT area.
My view was the entrepreneur who initiated this (was) persuaded to have this board and I was the chairman of that board. The board destroyed them and the company went bankrupt. Had we left that guy to be an entrepreneur and built the foundation for his business, and then have the board, it would have worked.
So, I am wary with start-ups and what a board can do.
Boards by nature are there to restrict. The whole structure of the board is based on the fact that I don’t trust you. It’s not based on the fact that I trust you and therefore we are going to work together. So, if we do not change that fundamental philosophy, imagine what damage are you going to do to a start-up.
The only boards that I have seen work well with start-ups is where the investors are directly sitting on that board.
Yes, there will be tensions as investors may want far shorter term returns than the person who is running the business. But at least the board is geared to wealth creation process as well as the other factors.
So, from bitter experience and I say with deep regrets, I personally helped somebody go bankrupt as I did not quite understand what I was doing.
There is no point sitting in his shop and advise until that guy realizes that his shop is big enough and he needs some help.
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