How to build a strong board
I have strong views on how a board ought to be constituted and how it ought to function. This is because first-hand experience suggests an effective board is a source of competitive advantage. It can add significant value to any entity. Boards cannot be mute spectators restricted to protecting the rights of minority shareholders; or for that matter remain an entity that exists to comply with statutory and governance issues.
But the way things are—and pardon the expression here—many boards are emasculated entities that represent the interest of owners. Why does it have to be that way? Why don’t people invest time and effort into asking fundamental questions like: What value does a board add? At the end of every meeting, did the members who comprise the board add value to the company?
These are issues the chairman or chairperson of a company must weigh in on and be absolutely clear from Day One. The chairman plays the most important role in a board and he has to work hard to set the right agenda. In fact, setting the right agenda is a task in itself because when done well, it creates room for all members on the board to add significant value.
This must include discussions on strategy and choice-making. For instance, what kind of products should a company be selling or not selling? What geographies to get into and what to stay away from?
When it comes to all issues that involve strategic decision-making, the board must be involved. To do that, it must have a clear idea of the organizational strategy. And this must be captured concisely in two pages.
This raises the next question. What is strategy?
It involves the management team coming up with a simple document not exceeding two pages that answers the following questions:
• What is my business?
• What should it be?
• Do I have the right to win those businesses?
• What are my sources of competitive advantages?
• How has the organization succeeded based on competencies the organization has?
• Where will the organization operate these businesses and in which geographies?
• What areas will the organization not get into?
• What will we not do?
• And finally, why will we remain in the marketplace?
All of this has to be captured, discussed in detail with the board and it has to be aligned with organizational strategy. The strategy has to be renewed and discussed every year at the annual retreat. Mind you, strategy is not permanent. It has to be revisited at annual intervals.
The other challenge all boards face is because interaction happens only at quarterly intervals. Why should it be that way? Why shouldn’t board members be involved continuously?
To get around this, at Marico Ltd, we send all board members an update every month. Here too, the notes ought not to run into more than four pages. What went right? What went wrong? What are the plans?
All these apart, if an individual team member needs to refer to the board, outside the quarterly meeting, the chairman must encourage that.
The way we have constituted the board at Marico is that each member brings something unique to the table. Everybody respects his or her competence in a particular domain. By way of example, consider the FMCG (fast moving consumer goods) business. We have experts who have been at the helm of FMCG companies in the past. Rajeev Bakshi and Anand Kripalu are veterans in the space. So if anybody needs to brainstorm with them or get inputs on what they ought to be doing with the business, they can always turn to Rajeev or Anand outside the board meeting.
As chairman, I have made this absolutely clear to my management team. It could be an acquisition, a new marketing strategy, or a skill upgrade programme. Similarly with human resources—if the team has problem with, say attrition, they can always go to Hema Ravichandar for assistance. She is a veteran and knows how to deal with pretty much all kinds of situations in the space.
For that matter, if it is the retail business that needs assistance, B.S. Nagesh, vice-chairman of Shoppers Stop, is the best port of call on the Marico board.
The larger point here is, in creating the board, you start by asking what competencies are required at the board level—not which individuals you would like to see there. That is why we ought to start by mapping competencies.
Today, for instance, we need somebody who has experience in the digital world. But what we know is that we want digital entrepreneurs, not digital professionals. This means somebody who has started something in the digital business space. So, you first identify the competency required, identify who are the best people in the ecosystem and then ask whom do you think is the best person if they’d be a part of your board.
It is only pertinent you ask, how did it happen at Marico? In some cases, it has happened because of my personal network. Then there are other times I go to a consultant with a specific mandate to look for people with a certain kind of background. After they come back with a few options, a shortlist is created and a final call is taken.
While evaluating board members, you look for functional expertise and the organizational context they operate in. So, you don’t want somebody who is completely functional, but not aware of the larger organizational context. What you need is a specialist as well as a generalist at the board level. A good combination is that of a specialist and a generalist who understands how the business operates.
You need to have the personal ability to work with good directors as well. On their part, they must be open to receiving critique, not highly dominating and willing to strive towards building a consensus. At the end of the day, the board should combine specialist skills with the outlook of a generalist.
It cannot be stressed how important it is to find commitment because there is work to be done beyond the quarterly meetings. This is not something money can buy. They come in because they see a certain take-home in terms of the intellectual value you offer them.
Most boards in India exist to cover statutory issues. But that is a fatal flaw. The board must have centre stage—in fact, go overboard. Everybody on the board must be assured they can sleep well and there are no surprises for them. That means having a good audit committee that works with the internal auditor and statutory auditor to ensure governance is at the highest level.
If you take care of all these things, then discussions can go onto the strategic side to make sure the company is future-ready. But that means you invest a lot of time into crafting the right agenda and raise the right questions at board meetings.
As a thumb rule, we don’t do any PowerPoint presentations at these meetings. Talking points are sent to the board much earlier. It is the job of the management team to identify critical issues that need to be discussed at this level.
That done, it is the chairman’s job to ensure every board member gets a chance to participate in the discussion. If a board member is not forthcoming, because, say somebody else on the table overawes them, the chairman has to go around the table, and ask for each one’s opinion. You must insist every member participates.
And then at the end of the meeting, every board member is given a form that they have to fill in that you may understand the quality of the meeting.
How the chairman drives board effectiveness is important. If as chairman I ignore a critique, the board member will stop giving me feedback. So, it is important whatever comes up in the board meeting, the chairman has to take it in the right spirit. It is perfectly okay for a board member to criticize.
End of the day, it is a fine balance to run things and ensure everybody participates. So, a lot of pre-work goes into making a board meeting successful.
Most Indian companies have boards that operate at a superficial level. That said, things are changing for the better, all thanks to the Securities and Exchange Board of India regulations. Indian companies still have some way to go in creating effective boards.
What we need to understand as well is that the board is a source of competitive advantage. Every company has to realize that and understand it is not just to meet statutory requirements. That is why Wipro Ltd and Dr Reddy’s Laboratories Ltd come across as outstanding companies. They have a vibrant board that does all that is expected of them.
Harsh Mariwala is chairman of Marico Ltd. He is at work on his first book, which will be published next year.