The gloomy state of corporate boards
Sep 16 2013
We were looking at the option before the company on how to add innovation, intangible value, and more knowledge to their products. The design of the products and speed-to-market were key elements. A question was asked to the director (human resource) as to the number of young engineers below the age of 30 in the total workforce of about 15,000 (of which 30 per cent are engineers). There was no answer from him — surprisingly, none of the other functional directors too had an answer. Earlier, the chairman mentioned that many young engineers tended to leave office by 4 pm since they had no tangible work. To us, this was symptomatic of a severe managerial and organisational structural problem. We see around us every day, the X-Generation that is highly aspirational and ready to forego sleep and even money if the task is challenging and value-creating enough. It took about three hours, a few urgent SMSs and phone calls to the HQ, to find out that the number of engineers below 30 years was an astounding 2,100 (more than 50 per cent of the entire engineering workforce). What a colossal waste of fresh human talent! Surely there were at least 10 per cent whiz-kids amongst these huge numbers who could change the shape of the company and competition.
This is a glimpse of the manner in which corporate boards function. It is not an accident that two supposedly stalwarts of corporate governance (who headed important national committees on devising norms and rules for the corporate world) had to leave their positions as either chairman of the board (of Everonn Education) or chairman of advisory council (of SKS Microfinance), after the CEOs of the companies were indicted for fraud, manipulations, criminal actions such as bribes or simply had to quit under controversy. (One of them, NR Narayana Murthy is back at Infosys with son in tow as vice-president).
In another company, the independent director was surprised that the board had, in the previous year, passed a resolution for bonus to directors valid for next five years! In an academic institution of national importance, the board of governors, chaired by a much-hyped and iconic figure, passed a unanimous resolution virtually banning publication of books by its faculty by giving zero credit in the imposed faculty norms. When asked that if the faculty of a national institute of excellence would not write books then who would, the incredible rationale given by a board member was that the “faculty gets paid for writing books by the publishers.” This can happen only in India. Elsewhere in the world, even the director cannot be appointed without the explicit feedback from the faculty.
The ‘profession versus money’ debate is universal. Consultancy firms are generally too pleased to do and write what the promoters and executive directors want, as long as it fetches them fat cheques. In one particular board meet, where the opportunities of entering into a particular sunrise industry (but cluttered with competition and glut in capacities) were being discussed, the global consultancy firm had to be specifically admonished to provide their professional opinion rather than articulate the promoter’s desires. Similarly, a global bank made hockey-stick shaped exponential growth projections without much basis and ‘what-if’ analysis just to sell big-ticket loans. It becomes cronyism of a different kind.
Does this form of capitalism need a revisit? I think so. In the boardroom, the wise do not use their wisdom, experts do not display their expertise, and the manipulators have devised various tricks to get resolutions passed either through co-option, or threats or simply by-passing. It is also a conspiracy by silence. Can more regulation by the government help? It can, but then it lends itself to the danger of inviting bureaucratic interferences and delays that open another route to corruption by the people in power.
Global experiences show that the presence of stalwarts and icons are often inducted to boost the market value of companies rather than for their wisdom and knowledge. Fallen heroes and collapsed firms are not accidents. It’s a natural outcome of the human mind’s viciousness, which easily tends to be corrupted by power, greed, comfort, feeling of invincibility, and hubris.
(The writer is a professor of strategy and corporate governance, IIM-Lucknow)