Getting it Right

Let's test your knowledge quotient on Indian company Boards. Which 18 member board of an Indian telecom company consists of seven foreigners, two private equity players, two promoters of Indian groups, an ex global CEO, a senior woman advertising professional, and a director of a country’s reserve bank? Which 122-year-old, Indian FMCG company has spelt out board membership criteria in its recent annual report that requires a candidate to have 2-3 years of experience as a CEO, preferably of a MNC in India or be a consultant/academic with experience in the FMCG industry or be an Ayurvedic doctor with a minimum of 20 years experience as a practitioner/researcher? And finally, which software company has a board review system wherein, every year, all the board members give a presentation on their contribution to the board?

Regular CD readers would have managed the answers to all the questions correctly, which are: Bharti, Dabur and Infosys, respectively. These three examples portray a side of the change that’s sweeping through boards of top Indian companies. And the driver for this change isn’t just SEBI regulations like Clause 49. The companies themselves have initiated changes in their board rooms, for a variety of reasons. “There is a lot of change taking place in the boards of top Indian companies. They feel they need to have balanced boards to increase shareholder value and drive business growth,” says Poonam Barua, regional director-India, The Conference Board.

There’s a strong feeling among the Indian corporates that their top decision-making body has to be top-notch to drive the company to the next level. “We don’t want golfing buddies. We want a balanced board consisting of directors with complimentary skill sets. With the promoter family no longer playing an active role in day-to-day management, a strong board is very important for us,” says Dabur India group director, P D Narang.

The most visible change is in the composition of the Boards. A totally new set has replaced the CAs, lawyers and ex-bureaucrats that previously filled the seats. Today’s set consists of international CEOs, renowned academics, private equity players, nominees of FIIs, and also professionals with solid backgrounds. Among academics, Bharti has VS Raju, Tata Motors has Clayton Christensen, Wipro has Jagdish Sheth and Godrej has Bala Balachandran. Among global personalities, Infosys has Larry Pressler, Wipro has former Nortel CEO William Arthur Owens, and Biocon has Neville Bain, chairman, Hogg Robinson Plc. “Our criteria clearly defines that the person should have global experience, functional expertise, and skills to guide the company. He should have adequate experience of operating in a global environment,” says V Balakrishnan, CFO, Infosys.

Over the last five years, boards have become much more involved, and have begun to focus on new areas. They now spend much more time in areas like risk management and ethics, which were non-existent five years ago. Infosys has even recently formed a risk management committee headed by David Boyles to gauge various kinds of global risks. Industry watchers also feel that board members are now much more company centric than before. “Very clearly, a lot of focus is on value creation and adding overall value to the company. Previously, boards were promoter aligned. Now they are company aligned,” says Sunil Chandiramani, national director, Risk and Advisory services, E&Y.

Companies desiring to access capital markets need to have a well-defined corporate governance system in place, and that’s the goal of many a company these days. “Salvation for many Indian entrepreneurs lies in enhanced shareholder value, and increased market capitalization, and for that enhanced levels of corporate governance are a must,” says Atul Vohra, CEO, Transearch.
Though many of these major changes have been led by SEBI regulations, there is also a feeling that having a robust board actually increases shareholder value, and boosts growth in the long term. But Indian boards are still far behind global benchmarks, though change is in the air. According to a Conference Board paper, top companies in India are benefiting from a ‘late-mover advantage’, absorbing the latest best practices from world over. “There are some companies who will not change, but globally competitive Indian companies are imbibing all sorts of international benchmarks, be it on board diversity or compensation,” says Sunit Mehra, managing director, Hunt Partners, which is into director-level executive search.