The role of the Board of Directors (Board) in shaping the development of a corporation is multifaceted and covers among others governance, business, and the culture in the organisation. For listed companies in India, there is regulatory requirement on what is the desired composition of the Board, which includes among others, the presence of women directors, majority of independent directors and for certain companies, separation of the role of Chairman of the Board from the Chief Executive of the organisation. However, for unlisted companies, there is no regulatory requirement on the composition of Boards.
This article poses questions on the five distinct elements of Board composition and answers what value that these distinct elements add to the governance, business, and culture of the corporation. Despite it not being mandatory, Corporate Professionals would do well to consider these five distinct elements in their Board composition as they assess their Board in its ability to realise its corporate vision and goals.
- Are all the key specialisations required for the business to perform optimally available in the Board?
The health of a corporation is directly related to the health of its business. While support functions like finance, legal and HR are necessary for a business to thrive, the core of the business is to create products or service of value to customers/ clients and provide it to them at an affordable price, while making profits. This requires that all the key decisions of the company are made considering the market realities and technology required to produce these goods and services at an optimal cost for making profits. Periodic assessment of the specialisations required to run the company and benchmarking it with the talent available in the Board is essential for retaining balanced decision making by the Board.
- Is there infusion of fresh blood into the Board with infusion of new members every couple of years?
A company exists at its will, with the oldest company in India being more than 150 years old. While there is no limitation placed on the tenure of executive or promoter directors, only for independent directors, the maximum tenure is of two terms of five years each. Given this, there is a possibility that the same Board may exist for a block of five years or more. Hence evaluating the Board composition for infusion of fresh blood is essential if the vitality of the Board to assess changes in environment or ‘see’ the business operations with a fresh sight is required. Hence evaluating the frequency at which new members of the Board are inducted is a key part of ensuring Board vitality and ensuring fresh insight is available in the decision-making process of the Board.
- Is there an appropriate blend of experienced and young professionals’ members in the Board?
While age and experience are not and cannot be considered synonymous, even the most astute observer will admit that the perspective brought in by an experience professional and young professional is different. In todays’ digital tech and social media dominated world, often the perspective brought in by a young professional can add significant value, especially if it is tempered with the wisdom of the experienced professionals on the Board. Hence evaluating the Board composition by the different decades of their members age is a good indicator of the Board vitality.
- Is the gender balance in the Board adequate to hear the voice of women in different stakeholder groups?
The participation and influence of women in all the stakeholder groups is on the rise, especially in the work team, customer decision making and public perception of the company. Hence corporate decision making needs to consciously represent women in the apex decision making body and have them participate in the decision making process to ensure that the company creates a sustainable and profitable business. While the role of different stakeholders varies in different industries, there is no industry where their presence is not felt and hence regulators have played a defining role in including them on the Boards of listed companies. Unlisted companies too would benefit by inducting women on their Board.
- Is there balance between executive members and non-executive members in the Board?
Executive Board members bring in the ground realities and take responsibility for executing decisions taken at the Board level, while non-executive Board members bring the expectations of stakeholders from the company thereby creating an healthy tension that augurs well for the company’s performance. A Board without executive directors presence could take non-implementable decisions and set unrealistic goals, Board lacking non-executive members may lack the ambition and connect with stakeholders being limited by the ground realities. Hence a balanced Board is essential in creating a healthy business.
Being utopian, it is rare to see a company’s Board that is balanced across all the five fronts. However, it is not unrealistic to expect balance on at least on 3 of the five elements identified above, when we benchmark a company’s Board that is aiming to be sustainable and profitable.