Why boards of Indian companies have work to do
Boards have their work cut out, specifically in getting the board composition and succession planning right
Over the years, as governance models have evolved, so have perceptions about a board’s accountability towards good governance. Many factors, which include changes in corporate ownership, growth of family-owned businesses, corruption, obliteration of shareholder wealth and stakeholder value, and operating in volatile and complex environments, have amplified the scrutiny on the board’s role and responsibilities.
Regulators have, therefore, stepped in to enhance governance norms. The Kotak Committee’s recommendations provided a fine template for improving the functioning of boards. While these changes seem promising, will they hit the nail on the head?
Boards have their work cut out, specifically in getting board composition (appointment of independent directors) and succession planning right, thereby making the nominating and governance committee the centre of action for many boards. Korn Ferry has been tracking board performance across the globe and believes that these two aspects serve as the cornerstone for larger issues of effectiveness, with the first one dealing with having the right team/board and the second focusing on getting the right CEO to run the company, which is the board’s most important agenda.
Few events carry greater risk to shareholder value than a change in leadership. While Indian boards are starting to ensure a comprehensive and rigorous selection process for the CEO’s role, many boards still lack a structured framework that makes CEO succession a standing agenda item, even from the start of a new CEO’s tenure. When CEO succession is not viewed as a progressive and planned move, the focus of the board tends to be on replacing the current CEO rather than fostering a long-term vision and developing a multi-generational leadership bench that can take on the mantle in the future. Keeping CEO succession continually on the table provides a critical thrust to CEO, chief human resources officer, and the board to develop an internal and external slate of candidates, selected after an intensive assessment and evaluation process.
Critical to the success of the CEO and the organization is a board with competencies and intellectual capital to address the toughest strategic and operational challenges. There is no more powerful combination—or one more fundamental to the success of any enterprise—than the successful partnership between a CEO and a strong independent board that can provide oversight and serve as both adviser and strategic arsenal. Therefore, identifying and recruiting independent directors, who bring along strong expertise and are joining the board for the right reasons, become critical.
To gain insights into which boards deliver on these aspects, Korn Ferry has partnered with the National Stock Exchange (NSE) for an extensive industry outreach. The first leg was conducted through an online survey filled by board members of over 100 NSE-listed firms, representing a multi-sectoral focus, and constituting large-, mid- and small-cap spectrum of the market. The second leg, currently underway, involves a detailed analysis of these responses by Korn Ferry global board practice experts. The results of the study will provide a window into “Boards that Lead” with some of the finest practices and will be used to strengthen the governance framework.
Few boards are true strategic assets. Watch this space to know these gems.
Monica Agrawal, head, financial services, and co-head, board services, Korn Ferry India.
Mint is a media partner for a study titled Boards That Lead, jointly done by Korn Ferry and NSE. The report will be released on 17 December at an event in Mumbai and its key findings will be carried in Mint.