Tuesday, June 16, 2009

Improve Board Governance

The Indian corporate sector has matured significantly in the last two decades and we are in the process of building large global conglomerates. It is indeed a proud moment for the Indian corporate sector. However, to sustain the further emergence of strong corporate it is time we start focusing more and more on corporate governance, particularly board governance.

The Board of Director is the supreme policy making body as also the final custodian to protect the interest of all the stakeholders. With the corporate sector gaining strong economic power as also the recent corporate fraud in Satyam Computers, the functioning of the board and corporate governance assume strong significance.

In most of the Indian companies, the Boards still function more to meet the regulatory requirement than any business requirement. The CEO, still largely controls the appointment of the Board. This is dichotomous, since one of the core function of the Board is to review the functioning and performance of the CEO. Many Boards still operate within the broader contours set out by the CEO. The Board agenda as also the Board meetings are largely controlled by the CEOs even in companies where the CEO is not the chairman of the Board. The Boards still depend on the views of the other executive directors and senior officials, who are controlled by the CEO. So in reality the effective functioning of the board to a large extent depends on the desire and willingness of the CEO to make the Board an effective entity.

In addition most of the Board members do not take additional interest in the company beyond the confines of the board meeting. They tend to meet a limited set of senior personnel and do not normally have a keen sense of the ground level realities. The cultural issues of an organization, which has important bearing in any business strategy formulation as also effective implementation, is quite likely to be missed out by the Board.

It is therefore important to build a cadre of strong professional directors, quite in contrast with the largely prevalent practice of ornamental directors, well known names in their respective fields, but not necessarily strong in corporate management. The recent insistence of SEBI for implementation of Clause 49 is a step in the right direction. It will force most of the companies to give a more serious look at the Board. In addition, it is time for institutional shareholders like Mutual funds, FIIs to vie for board representation. They will be able to help in professional sing the Boards. The entry of venture funds and private equity funds will also further help in this direction.

The Board to be more effective should get into the skin of the organization a lot more without any semblance of interference in the day to day working of the company. It should also have the ability to obtain independent professional advice on the various strategies and implementation from outside consultants and professionals. The Board should also be able to obtain independent opinion on bench making of the corporate with other competitors. Bench marking would provide a good platform to judge the performance company and the CEO in a more objective way.

With the corporate CEOs assuming larger than life status in the world of business, the Board has an onerous responsibility in playing the role of an objective evaluator to protect the interests of the stakeholders including the shareholders and the employees.

India - Need for Uniform School Education

I am not an educationist. However, I write this piece as this is an issue which has bothered me a lot for a long time. The Indian education system is hailed as a strong system which has enabled the country to create a large pool of educated class. It also provides a good opportunity to students in all parts of the country, be it in a small village or in a metro access to education. The networks of government schools all over the country also provide access to relatively low cost or free education.

However, what strikes me is the complete lack of uniformity in education. We have state boards, the central boards and now also the International Baccalaureate. We have the state government run schools, the schools by the central government, the private schools and also schools run by religious institutions. We have various mediums of educations, English, Hindi and all the state languages.

The plethora of mediums as also the types of education creates a strong divide amongst students. We have the English speaking elites and the low profile vernacular types. We also have the private school “haves” and the government school “have nots”. There is also a differentiation of class between the elite private schools and the other private schools.

This differentiation also carries to the next level of education at the undergraduate levels with its undesirable consequences. I have seen there is always polarization of students in the campuses coming from these various types of schools. While the centers of higher education should be melting pots, they still tend to continue as islands of isolation of these different groups. This is further accentuated by strong alumni network of the exclusive schools create a further divide between the elite schools and the ordinary schools. The strong networks of these elite institutions also create a further social divide.

So in effect you find a situation wherein the schooling creates deep divide amongst students. It creates the differentiation in the new society. So when we look at the entry to schools, the elite schools are available only for the children of the rich and famous. It is also the prerogative of the kids of the metros and large towns. In effect we are denying the kids in the small towns and the kids from lower and middle class families.

If we are to provide an equal opportunity to the whole country, we should strive towards creating a uniform educational system somewhat on the lines of the US, wherein you have the right to get the admission in the neighborhood school. Only the very rich should be in a position to send their children to the exclusive private schools. This will provide access to every one to the same quality education. This will necessitate that the state and the central government work together to standardize the educational curriculum including moving the medium of education to English. It will require strong political will and substantial investment to bring in the state government and central schools at par with the with the top end private schools. However, it will provide the immense benefit of building a strong educational infrastructure with the flexibility of changing the curriculum with changing times. Once we have a common educational platform, we can put better systems to identify talents. It will provide an opportunity to small town/village students to compete more effectively without being burdened with the disadvantages of curriculum and modes of education as it is at present. It will also provide an added advantage for better mobility of people across the country.