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What happens within boardrooms of companies has a direct bearing on corporate governance, and the character and value systems of the directors and the time and inclination they have to exercise close and constant supervision influence the happenings within the boardrooms. This proposition would have seemed self-evident, but for the sinking like the Titanic Enron, Anderson, Worldcom, Sunbeam, and the like in the US and scandals involving other household names in the UK, the Netherlands and Italy in the 2000s. These cataclysmic events showed that the trust of the stakeholders - investors, customers, bankers and so on — in the competence and judgment of the boards of these firms had been either wantonly betrayed or tragically misplaced. It is also obvious that such disasters are the by-products of sordid human tendencies of greed and grab-as-grab-can; these are not unique to any particular country or culture, race or religion, time or clime, but are inherent in any situation lending itself to such opportunities and temptations. Two conclusions emerge: First, there is absolutely no room for complacency. Globalisation does not just mean spread of best practices but also of worst human traits leading to decay and demise of even well-off companies, and utter ruin of hundreds of thousands of investors. Second, a corollary of the first, is the imperative need for watchfulness by not only those having a stake in the company, but also the general mass of citizenry and civil society groups. The shareholders should keep themselves abreast of the news relating to the company — the share movements, the turnover, attrition of personnel, deployment and performance of senior-level executives, decisions on induction of new technologies, introduction of new products, mergers, acquisitions and buyouts and other salient aspects of management. Indeed, the time has come for stakeholders of each company establishing a representative core group and starting the practice of having periodical meetings with the Board of Directors, to brief themselves on the latest developments. This will inevitably call for a change in Boardroom dynamics from the present one of directors going by the say-so of the top executives to one of critical and searching examination of every issue which is placed before the directors, or comes to their notice. The committees meant for audit, director nomination, appointments, compensation, plans and strategies and projects oversight should have a preponderance of independent directors, hold frequent meetings and never be shy of asking pertinent questions to satisfy themselves about the financial and functional health of the company. Deep engagement Ultimately, it is the Board that must hold itself answerable to stakeholders as well as the society at large for the efficient running of the company under its charge in conformity with canons of propriety, probity and prudence, with due consideration for environmental protection and social responsibility. As an article (The Era of the Inclusive Leader) in the Web site of strategy+business puts it: "Boards of directors will need to encourage constructive disagreement and debate, abandoning consensus habit as a vestige of the imperial age...Because of intensifying global competition and ever-higher expectations about corporate performance, companies now need the board of directors to proactively offer suggestions, to debate threats and opportunities, to push back aggressively if management is heading in the wrong direction, and to make informed judgments. Deep engagement requires directors to participate in dialogues with customers, channel partners, suppliers, and employees — not different in concept from the traditional role of the ideal director, but completely different from the usual practice. These dialogues in turn require directors to devote time beyond the quarterly board meetings..." People look up to the federations of chambers of commerce and industry to save India from the danger of an Enron-like eventuality. B. S. RAGHAVAN © Copyright 2000 - 2006 The Hindu Business Line
FAQ :
These disasters were caused by greed and a betrayal of stakeholder trust, showing that boards failed to exercise proper competence, judgment, and supervision.
Boardrooms must shift from simply agreeing with top executives to critically examining every issue, encouraging constructive debate, and abandoning the habit of automatic consensus.
Independent directors should make up the majority of key committees—such as audit, nomination, and compensation—and must frequently ask searching questions to ensure the company's health.
Stakeholders should monitor company news and performance, form representative core groups, and hold periodic meetings with the Board of Directors to stay informed on key developments.
It requires directors to dedicate extra time beyond quarterly meetings to participate in direct dialogues with customers, suppliers, partners, and employees.
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