Article (January-2019)


Beyond compliance mindset

Anil Kaushik

Designation : -   CMD

Organization : -  Focus TPA


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Unfortunately one of the most worrisome issues witnessed in year 2018 has been of corporate governance. Be it IL & FS, PNB, Yes Bank, Fortis, ICICI, Jet Airways, Gitanjali Gems or any other, the way business is conducted has somehow shaken the confidence of stakeholders and public at large. It is perceived that all is not well in corporate governance of such big organisations. Company law 2013 made certain provisions to ensure that corporate governance through board functioning should have a check and balance kind of mechanism to protect interests of stake holders and even small investors. And for this, provisions were introduced for appointment of independent directors. For bringing gender diversity and empowering women in boards, it was mandated to have at least one woman director in board in listed companies. So, there are two issues-corporate governance and board diversity. Let us look into one by one.

The important purpose of putting independent directors in boards was to have an independent voice and keep a check and dissent when things don't go in the interest of company. Their responsibility and liability were also fixed. But according to research reports, it is found that barring few, in many cases, either independent directors kept quiet and nodded their heads to the board proposals without viewing them critically or left the board abruptly when it came to turbulence in business governance. The other side is that it is important for the independent directors to provide governance but the system ought to protect them. Making independent directors liable for the acts they have not committed, have scared them. Actually independent directors should not be treated as executive directors. Responsibility of failure or success has to be with CEO, because they have very less control or influence over day to day affairs comparative to promoter directors. Actually governance excellence does not come from mere compliances or putting in place the statutory safeguards. Value system, the directors carry and their ethical behaviour pattern, carry immense importance.

As far as gender diversity in boards is concerned, studies of prime data base of 2017 and Indian's research reveals that though the appointment of women directors in listed companies have increased but it has not gone enough beyond compliance mindset. In many cases women directors’ appointment are limited to promoters' personal network or their family members. Women directors are also paid about 50% less in comparison to their male counterparts, though their presence and contribution in governance is valued.

So, the time for the corporates is to go beyond the compliance mindset in both aspects, address  behavioural aspects of board members and strengthen excellence in governance to increase confidence of stakeholders.

With the support of Saagarika Ghoshal, a board women director as guest editor of this cover story, BM has roped in experts of the subject and directors to share their experiences, wisdom and provide a road map for excellent corporate governance and board diversity.

If you like it let us know. If not, well, let us know that too.

Happy Reading!