January is board meeting time, which
nowadays stretches up to mid-February. So too April
and May; July to mid-August; and October to
mid-November. During these periods, those serving as
independent directors juggle schedules as they move
from one board or committee meeting to another,
often located in different cities and occasionally
in more than one country.
Being such a fiduciary and seeing boards from
‘inside’, I thought it may be useful to share with
you what sensible independent directors believe to
be good and bad board practices, and describe these
as some fundamental ‘do’s’ and ‘don’ts’.
• Don’t play around with board and committee meeting
dates. This is really annoying. It interferes with
an independent director’s time-table and that can be
very irritating, unless it is for a serious purpose.
It also suggests that neither the management nor the
promoter cares a whit about their independent
directors’ calendars and basic board practices.
Thankfully, this is becoming a rarity among the
major listed companies in India. Most confer with
the board members to prepare a time table that runs
twelve to eighteen months forward. However, some
still do not, which exasperates.
• Don’t believe that all worthies necessarily make
for good board members. They often don’t. A board is
not a receptacle for great and glorious names. It is
an apex institution that is expected to discharge
very important oversight and governance functions.
Therefore, each director must not only bring skills
and abilities that are important to company, but
also pull her weight. Too often board members are
chosen without deciding what expertise is needed for
a company’s highest governance body. “He’s a good
chap” worked in the past, because boards were
expected to be “good chap” things. It doesn’t today.
Properly chosen, independent directors are huge
assets. If not, they liabilities that you have to
live with for a needless number of years; or, at
best, parsleys on the fish.
• Prepare a good time table of topics that should be
discussed at the board and committee meetings over
the financial year. Financials, internal audit
reviews, risk reviews, process and control reviews
and discussions with the statutory auditors are both
necessary and statutory, and must be conducted by
the audit committee and reported to the full board
for the four quarters and the financial year as a
whole. That is non-negotiable. So too are statutory
matters that must come up to the board, as given in
the Companies Act, 1956 and Clause 49 of the Listing
Agreement. In addition, boards must look at staffing
and HR issues at least twice a year; progress of the
key strategic business units, also at least once a
year; targets sets for and compensation of senior
management, once at the beginning of the financial
year, and at least once at the end, before deciding
the appropriate performance linked variable pay.
Then there is succession planning and review of the
quality of senior management — at the board level
and at least one level below the board. There should
also be at least one or two meetings regarding
potential new independent directors who can add to
or refresh the board; and on key issues relevant to
the industry and sector in which the company
operates. In addition, there should be a strategy
session, usually off-site and outside the financial
results cycle, which allows management to share what
it plans to do for the next year, and a three-year
rolling plan.
• Prepare the board deck well. Nothing pleases an
independent director more than a seriously thought
out, properly populated and well anticipated board
pack. Equally, nothing is more irritating than
quickly prepared sloppy stuff. I have seen
disproportionate smiles and kudos for a good deck.
And huge opprobrium at being forced to read rubbish.
It doesn’t take much effort to produce quality. But
it needs the right attitude — one that says “I
respect my directors and will do everything to
induce their best output from the scarce time.”
• Send board papers sufficiently in advance. Don’t
spout what I call the ‘confidentiality crap’. Either
you trust your fiduciaries or you don’t. If the
latter, they should not be in your board. If the
former, respect it, and give them the papers in time
for them to read and digest them. Including
financials.
• Either ban PowerPoint presentations. Or follow the
K. V. Kamath dictum. Tomes of PowerPoint are
irritating, nay destructive, and prevent sensible
debate. I think of it as management’s revenge on the
board. If you have sent the papers in advance, and
still insist on Bill Gates’ revenge, here’s the
Kamath formula: 10-20-30. No more than 10 slides. No
more than 20 minutes of presenter’s talk; and no
less than 30 point size. Brevity is the soul of
everything. We need to understand that.
Published: Business World, January
2012
