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Business News/ Specials / Best Boards 2012/  ‘Guiding philosophy of managements, boards is what matters’

Mumbai: Hemant M. Nerurkar, managing director of Tata Steel Ltd, talks about how the board guides the company. Edited excerpts:

How has your company ensured good governance at the board level?

The Tata Steel board has a very rich tradition. J.R.D. Tata himself was the chairman for a very long time. The same tradition continues. The board in many ways is like a friend, philosopher and guide to the company.

It has also helped us become a global company by giving us strategic direction. Simultaneously, the board is very particular about the Tata values, tradition and especially ethics. That is something that has always helped us to maintain high standards of governance. The board also ensures that employees get their fair share. Nowadays, the stress is also on maintaining environmental standards—how to be green and ensure health safety standards. What is most important is that most members understand the business.

What processes do you follow and what has worked?

The Tata group, as you know, has adopted Tata Business Excellence as a model which has its own seven chapters on how to run an organization. That becomes a guiding philosophy and we improve on it. Most important are the Tata values and the Tata conduct. This is what distinguishes us from other companies. For instance, we have given up some lucrative assignments, simply because they did not fit in with our philosophy.

We spend at least four days a month, 10 times in a year on board meetings. These are spread over two days where we have the audit committee; safety and health committee; and then the board meetings. Audit committee meetings comprise both internal and external audits, and there is a lot of follow-up done based on the actions needed to be taken. Safety and health issues run across the organization and departments have to report the progress they make on these fronts. If anything specific emerges from these discussions, we act on them.

For example, if there’s a fatal accident, the business head has to report to the board what went wrong and the remedy for such a situation in the future. The board deals with major issues. As the company has scaled up, more issues crop up such as land disputes, mining and other environmental concerns. Therefore, the frequency of board meetings will increase. But more than the days, we may end up spending more hours discussing these issues and concerns.

How do you evaluate the efficacy of the board members?

Quite frankly, it’s the other way round. We are typically criticized for not giving quality information. We have been exhorted, on many occasions, by the board members to improve the quality of information that we give them. It is not fair to give the board volumes of data just two days before the meeting. What’s important is to provide the board members with sufficient time to pore through the data and prepare themselves for the meeting. I have observed that most of the times, the board members and independent directors come well-prepared for the meetings since most of them have been on our boards for a long time.

But isn’t there the fear that if independent directors have been on the boards for a long time, their independence could be compromised because of familiarity with the management? It may prevent them from asking uncomfortable questions. Also, the new Companies Bill may shorten the tenure of independent directors...

Yes, but every coin has two sides. Fortunately, in the Tata group, we have many checks and balances to ensure that we do not interfere with the working of the independent directors. My personal view is that continuity helps. The checks and balances include that each board member comes prepared, has knowledge on the subject and asks questions that are relevant and helpful to strengthening the business.

How do you communicate to your shareholders and employees that you have a well-governed board?

Our employees sense that intuitively when they visit our plants or offices across India. If you benchmark Tata Steel with any company in the world, we will figure in the top quartet on many fronts like quality, performance, technology, finance, etc.

Do you think the level of corporate governance in India can be raised?

The guiding philosophy of the managements and the boards is what matters.

Do our regulators need more teeth?

Koushik Chatterjee, group chief financial officer: Governance does not happen by checklists or tick-boxes, which is what a regulator can typically do. The quality of governance depends on the quality of people who sit on boards, and the level of confidence they bring to the table.

In studies done throughout the world, be it in the US, the UK or even South Africa, regulators are more like enablers and not an end in themselves. They can guide the boards. Much depends on how companies handle such situations. Regulators provide the framework.

The new Companies Bill is more to keep pace with modern thinking. It will provide a new framework, in principle. We will have to wait for the final Bill that is passed by Parliament to see what it eventually offers. Holistically, though, it’s a necessity and we should move towards accepting the new Bill.

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Updated: 10 Dec 2012, 06:57 PM IST
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