Firms in consumer sector follow best board practices, finds study
Mumbai: The Boards That Lead study by Korn Ferry throws up significant insights into how Indian boards and firms think and act when it comes to corporate governance. A sector-wise drill down of the study shows some interesting nuggets of information.
The report finds boards in industrial sector are not as independent as those in others such as consumer or financial services. In less than half of the companies, nomination panels decide on selection of independent directors. The sector needs to focus on ensuring board independence as it can lead to less conflict of interest between shareholders and the management. The study also found the sector lags on board effectiveness practices. Only 39% have a formal induction plan for board members, and 55% of industrial boards have a company charter.
The consumer sector scored highest in the Korn Ferry study on the adoption of board practices. In fact, the sector features among the top two across all practices. Consumer firms are better positioned than others to protect interests of shareholders and enhance shareholder value through good corporate governance, the report shows.
Around 88% of consumer firms reported that their board contributes to the development of the CEO and other top executives. This is significantly higher than the aggregate of all sectors which is at 71%. Within the consumer sector, 71% of firms reported having an induction process for board members, compared with the aggregate of all sectors at 53%.
Life sciences comes a close second to the consumer segment across most board practices. The sector demonstrates significant focus on selection of independent directors with 100% of firms reporting that independent directors are selected based on specific skills and qualifications, and 87% were selected on their ability to provide independent judgement on various matters. Most (86%) also reported their boards were highly involved in strategic and operational reviews, thus keeping a close watch on company performance.
However, boards in the life sciences sector were not as focused on their own performance, with just 40% of boards setting their own objectives and measuring their performance annually.
This sector showed a high focus on selection of independent directors, with 91% of companies reporting that they assess and select independent directors for specific skills and qualities. Around 82% of companies take steps to ensure the board has an eye on its own performance by putting in place a clear process for evaluating board performance. Boards need to increase focus on developing long-term capabilities of top management. While there is high emphasis on succession planning for CEO’s role, with 82% of boards delineating a clear process for identifying successors for key positions, there is, however, a big gap on development of the next level of leaders.
The technology sector is strong on compliance, with 92% of the boards overseeing audit and compliance processes, and 83% ensuring the strategic planning process delivers a realistic, meaningful and actionable business plan. However, they need to build on board practices, the report says.
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