Getting serious about board governance in India

12 Aug 2019

Getting serious about board governance in India

As the Modi government steps up corporate governance reform, executive search firms are being asked to play a vital role in ending cronyism.

‘I will not touch this with a barge pole’ was the recent response from a well-established board figure when asked to consider another board appointment with an Indian promoter-led conglomerate.

This particular organisation had been in the news for the wrong reasons, ever since the Modi government stepped up reforms to do with India’s corporate governance landscape. 

For decades, Indian promoter-led (family) groups have been practicing cronyism when it comes to board appointments. On top of that, potential board members have been happy to oblige without giving it much thought.

There has been an overall lack of accountability and structure to do with board appointments.

This has ranged from zero expectations set by promoters to lack of guidance provided to non-executive directors, to the absence of a board performance audit process. This ‘you rub my back, I rub yours’ approach has clearly had its day.

Fear of fraud

In the new Modi-led India, there is a sudden fear, and for good reason, amongst the board community. There have been numerous instances of fraud relating to multiple Indian enterprises, including Infrastructure Leasing & Financial Services (IL&FS), Manpasand Beverages, Nirav Modi, etc and the ‘so-called’ gatekeepers are to be blamed for all the mess.

The board community seems to be realising the danger of being ignorant to the happenings within an enterprise.

Now, board members are very conscious of the boards they want to be involved with. They are seeking information relating to statutory auditors, capital structure, bankers, financial debt, etc before committing to a seat on the board.

In addition, some now want to be on the boards of multinational companies, given what has transpired in India over the last few years. 

Professional process

Nowadays, a phone call by an Indian promoter inviting a friend to join his/her organisation’s board does not work. Both parties need professional help.

The promoter wants to make sure the right skillsets are being targeted given the context and future goals of the organisation. For their part, potential NEDs want to make sure that they are not opening themselves up to a potential risk/lawsuit.

Executive search firms are being called more to the table owing to this change in board selection policies.

Specifically, search firms are able to conduct their own due diligence and create a value proposition for the promoter company.

They are able to attract the right NED candidates, who in turn are more comfortable posing questions and dealing with search firms.

Better boards

In another development, a number of enterprises are choosing to partner with executive search firms to help reconstitute their boards. This is aimed not only to improve the quality of governance, but to make sure board members play an active role in contributing to the company’s growth, scrutinising set practices, mentoring leadership, and course-correcting as needed.

Would it be fair to say that as a percentage of overall executive appointments, there will be a ramp-up in board-level work for executive search firms in India?

Well, clearly, the value added by search firms, especially in this age of augmenting technologies, in identifying, attracting, and assessing board-level talent cannot be overlooked.

As executive search firms play a crucial role right at the top, this will no doubt help professionalise the board appointment process in India, hopefully putting an end to cronyism practices.