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 Boardroom Rules

Omkar Goswami


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


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