29 Jan 2020
How can board governance in India be made more effective?
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A well-governed board of directors has never been more critical. Whilst Indian board governance is evolving, as our recent roundtable debate revealed, there is still room for improvement.
Today, while legal compliance of boards is very important in India, embedding good governance practices into the corporate culture is becoming a priority as well.
It’s an important debate and Odgers Berndtson hosted two governance-focused roundtable events, from which we produced a report on ‘Board Governance in India’.
The events in Delhi and Mumbai were well attended by a mix of board members. These included Chairs, Independent Directors, Wholetime Director, CEOs and HR Leaders of large Indian conglomerates and multinational companies.
Important board governance agenda
The participants took stock of how corporate approaches to board governance in India have been evolving, including changes that have impacted the appointment, role and compensation of independent directors.
As revealed in our free downloadable report, the board governance discussion ranged widely, including:
- The process for board appointment.
- The role definition of a board member.
- Training for first-time independent directors.
- Compensation, board governance.
- Board performance reviews.
- The benefits of a more diverse board make-up.
- The impact of technological disruption.
- And legal protection for independent directors given the stringent regulations.
So, what are Indian companies looking for and how are they finding independent directors with the requisite experience?
Diligence, merit and reward
The governance problem often starts at the very beginning, with the selection and appointment of directors. Most global boards use search firms to hire independent directors. It is done after exhaustive diligence and is based on merit. In India, though, it is still very much a work in progress.
As one participant shared, “the current risk and reward ratio” for an independent director is “atrocious”.
From the candidate’s point of view, who can blame them for becoming very choosy and discerning about taking an independent director position on an Indian board. This makes it difficult to attract good talent. What’s more, the lack of corporate transparency and regulatory penalties make the risk versus reward equation extremely challenging for candidates.
The right mix of judgement, wisdom and dynamism
Pressure from international investors, other stakeholders and regulators is clearly having an impact on the corporate culture and good governance practices of India’s listed companies. This extends to the appointment, engagement and compensation of independent directors.
Responding to changes in regulation, while also maintaining focus on a company’s larger goals, remains a challenge. As one participant observed, “Too much compliance may dilute a company’s purpose and too much rigidity may come in the way of evolution. Therefore, board members need to have the right mix of judgement, wisdom and dynamism.”
Getting that mix right is a challenge that listed companies in India need to tackle, but they don’t have to do it alone.
Indian Board Governance Report
Download our ‘Effective board governance in India. Taking stock and looking forward.’ report.Download now