The Company Board: Advantage Global Competitiveness

In my more than three decades of corporate experience, I ran companies and ran management of companies to understand and discuss the most relevant aspects of growth drivers. The most important truth of successful companies is how competent their boards have been and stood the times. Along with the decision-making acumen of the board of directors, their competencies and varied competencies that they bring on table is of prime significance. Their deep involvement, rapport with the teams or management and the chairman's stance on the board are the most decisive parameters of the board's success that will provide the company a distinctive competitive advantage.

Traditionally, a number of board members were either the friends or extended family of promoters who lacked competency or the problem-solving skills to seek solutions for issues critical to the company. The promoters found it effortless appointing people in the board that they had wanted to either oblige or leverage their networks for political, geographical or other gains.

Indian Companies Act 1956 underwent some changes in 2013. The New Companies Act has substantially raised the bar on governance given the backdrop of big scams and governance failures in 2009 that affected the financial and economic development of a state and damaged the outlook of the country as a whole. The new or amended Companies Act talks about transparency issues related to transactions, risk engagement and risk mitigation. Most critical issues of corporate governance that remains include are rights, roles and equitable treatment of shareholders and their key ownership responsibility ensuring appropriate disclosures and absolute transparency. It is quite apparent that government would like Independent Directors on board to act as whistleblowers but as such there is less clarity on the 'how' of it.

It is an established fact that companies today operate in highly complex and risk-bearing environments. To help navigate this increasingly challenging and dynamic climate, many boards are rethinking who should be around the boardroom table, what competency he brings along and what should be on the agenda.

Following are the critical factors leading to Board's success:

Board's role:

1. Involvement: Board must be involved in a persistent and continuous manner at strategic levels of planning roadmap for future, direction setting and strategy layout, they must not delve deep into operational or day to day issues

2. Value critique: Advice or suggestions from experts must not be thought as unreasonable criticism, the inputs may add as a valuable resource towards building competitive advantage. Hence, critiques must be encouraged.

3. Understood well: The board must also ensure that their core competencies are explained well and understood by all concerned stakeholders to optimise their talent and expertise.

4. Know-how: Their knowledge about markets, new industries and areas where companies can draw synergies will help create a considerable value and relevance. Their understanding of the competitive turf, barriers or disruption to keep competition at bay and help lead the company - will go a long way creating lasting relationships and performance goals.

5. Futuristic: The Board must also be visionary in providing a future business competence plan and profitable areas the organisation can be lead to with minimum risk factors. The members must adhere to regularities of scheduled meetings, information sharing, transparency and compliance at all times.

Parallel to this, there is a sense of responsibility expected from the promoters or the chairman of the company to ensure the board is a success:

1. Transparency: Chairman has to ensure regular flow of information about various aspects of company and industry

2. Communication: At frequent intervals CEO/Chairman should brief and communicate with the board members about developments to draw out significant value from the board.

The real challenges and opportunities lie in how the board works together. The board must lay the basis of 4 P's of corporate governance within the organisations they are associated with:

Purpose to create equity in longer run: While it the foremost and early stage prerequisite, it goes in the long running of the company. A well drafted and conceptualised Vision, Mission and Business Strategy lead a way to shaping the corporate philosophy and work ethics that form the core in corporate reputation or goodwill creation.

Enabling People and Processes to manage, forge relationships, comply and innovate:  Successful boards are the ones that are able to focus on the key big picture issues through highly prioritised agendas, they are prepared to challenge management on its strategy and are capable of guiding the management teams towards excellence in performance by sharing diverse perspectives.

A critical role of the board is to review the management's efficiency and efficacy, evaluate the performance of top or core team with its CEO, both quantitative and qualitatively along. Their contribution towards overall progress or turnaround, improvement in increasing capital or labor productivity, strategic input or development towards globalisation etc. is ascertained and rewarded accordingly. Directors also guide promoters or top management factoring in stakeholder concerns and interests into account which may further improve relationships. This in return, makes it easier for a company to operate focusing vital energies in leading or to ideate for new products or services that will address stakeholder needs, and allow the company to reduce costs and maximise value. Hence, this results in a more responsible approach to risk-taking, which can deliver higher returns by pursuing competitive advantage in the most reasonable way. Boards have a fiduciary responsibility towards its stakeholders as guardians of risks and the liability that may arise failing to adhere to the financial compliance. Overall, stakeholder responsive corporate governance or ethical compliance leads to a more comprehensive understanding of corporate risks and opportunities while adding to a strong reputation over time. Further, effective stakeholder engagement promotes corporate learning and innovation.

In certain industries some risks are reviewed and assessed more frequently than the other risks to ensure they meet audit standards. Part of risk may be internal subjected to company's ability and agility to transform or adapt as per an external risk. Boards themselves per se do not necessarily have to oversee emerging trends but their governance function will require them to direct the management to be on a vigil and review the market dynamics to check competitors' disruption. Boards should therefore see their mission or relevance as catalysts and allow sensible risks for innovations.

Assessing Performance for future readiness: If the CEO is evaluated as per stock prices, then the management should focus on what will improve the stock prices in the foreseeable future. Management will have to shed the 'Fixer' mindset of only concentrating on incremental, non-risky projects in order to build market share and withstand competition, they will have to adopt discreetly the 'growers' mindset time to time to facilitate and influence resources for long term even if it means investing in less predictable projects. A well deserving CEO must be given a part in the equity of the business and while balancing the risks of innovation, his role must not be compromised or diluted, same also goes with the board or an independent director.

Along with day to day management and evaluation of performance it is imperative the board guides and helps in succession planning and in consultation with the management draw out a long-term road map for the organisation keeping in mind the market volatility and changing competitive turf.

For organizations to truly feel their board have a larger value and hold huge potential to turnaround businesses will need a mutual synergy at very deep levels of commitment, till then let us keep the blame games aside.

The author is a management thinker & philosopher, a mentor and a strategy consultant, an academician and a veteran in consumer durables and retail. He was formerly associated with LG Electronics as its COO and Director. He is also a member on Board of banks and few other business houses. He can be reached at yasho.v.verma@gmail.com