Boards of Directors: How Indian boards can learn from global ones
Indian boards can learn from global ones, and some of theselearnings are crossing over.
Earlier this year, when HP India managing director Neelam Dhawan was appointed to the global board of Philips as an independent director, it was the Dutch company acknowledging—and tapping —the market that is India and its executive talent.
“…her entrepreneurial experience in a large Asian market such as India will be invaluable in helping Philips achieve its ambitions for profitable growth,” Jeroen van der Veer, chairman of the Philips board, said while proposing her name.
The opposite is also true: Indian boards can learn from global boards, and they are transplanting, or adapting, some practices. “Global boards have had a lead,” says KV Kamath, the non-executive chairman of Infosys who is on the global board of Schlumberger.
“There, processes have been laid down for many years on various parameters: how committees should work, how they brief the board, recruitment and compensation of the board members, etc.”
NR Narayana Murthy, who has been on the Unilever and HSBC boards, recounts one such transplantation in the company he co-founded, Infosys. In 2003, following the bankruptcies in Enron and Arthur Andersen, the US securities market regulator mandated companies there to, among other things, appoint a lead independent director.
“We were the first Indian company to introduce the concept of a lead independent director, who presided over separate meetings of independent directors,” says Murthy, adding that this helped this set of directors in Infosys to take a more dispassionate view of issues.
Focused and Free Discussions
Murthy feels though the boards of many Indian companies, including Infosys, are “second to none”, they can still learn from their global peers. “The quality of discussions and presentations is something that Indian companies can learn from. Decisions are prompt and most of the time global parameters are considered,” he says.
HSBC India head Naina Lal Kidwai, who sits on the Nestle and the HSBC Asia-Pacific boards, is struck by how global boards cover vast ground quickly without curtailing discussion. “There’s respect accorded for different viewpoints, she says. “Board evaluations and performance reviews are regularly done, the quality of papers circulated and presentations made is high.”
Adds Kamath: “The sharing of feedback is much more direct, something Indian boards lack, though this is changing now.” Preparation is partly the reason for the more rigorous discourse that global boards manage, says Professor Nirmalya Kumar, professor of marketing at London Business School.
“Meetings are scheduled far in advance to ensure it is on everyone’s calendar as early as possible,” he says. “There’s less emphasis on statutory items and more indepth discussions to leverage expertise and judgement of a board member.”
Global boards make better use of their directors, relying on them more not just for advice but also to do tasks, says Peter Cappelli, George W Taylor professor of management, The Wharton School and the author of The India Way. “Oversight is stronger on these global boards and directors tend to be more outward-looking.”
Professionals and Independents
Kidwai blames the composition of Indian boards and the way members are selected for some of their shortcomings. “While there are many well-diversified Indian boards, a majority are still drawn from the stable of friends and relatives,” she says. “And representation of women is very low.”
A global best practice in director appointments is the use of external agencies to identify candidates and to decide their compensation. “Indian companies, many a times, use their local knowledge and understanding of a candidate to be inducted on a board,” says Kamath. “Similarly, the compensation issue is also not addressed.”
Besides diversity, global corporations create a good induction process for new board members, says Vindi Banga, former managing director of Hindustan Unilever. “Senior managers are exposed to the board, who gain familiarity with the company, and become involved in strategy development and talent reviews/succession planning.”
Another HUL stalwart, Harish Manwani, says the difference good Indian boards and global ones is not much, but there are always learnings in a new environment. “The only difference could be in terms of the global scope and size of the business,” he says.
“It gives good exposure to the process of governance and an opportunity to see a business from different angles. Having the opportunity to be on a board of a company in a different sector will only add value to your own experience and area of expertise.” As more Indian executives cross over, they will, in time, share some of that experience and expertise back home.