The primary role of a corporate board is to not only ensure robust growth but also protect and enhance the reputation of the company, said Mr. N.R. Narayana Murthy, Founder, Infosys at AIMA’s 47th National Management Convention Session.
Mr. N.R. Narayana Murthy, Founder, Infosys had deliberated AIMA’s 47th National Management Convention Session on ‘Setting the Board Agenda: Winning Trust and Influencing Ethics’ and here are a few valuable things that he shared in relation to the theme.
He started the Session on an enlightening note by saying that the economic reforms of 1991 influenced the Listed Companies in India in 3 major ways-
- India welcomed a large number of institutional global investors, who expected the companies to rev the level of their financial disclosure to match that of developed countries.
- While abolishing the office of the controller of capital issues, the Central Government made all the listing of the Indian Stock Exchanges an attractive proposition for entrepreneurs.
- Traditional businesses realised the power of the price-of-earnings ratio. They discovered that the rupee added to the ratio of their earnings, which added to their own personal wealth.
He further added that good governance is about deciding to do the right thing while good management is all about doing that right thing, well. Good corporate governance is about creating sustained competitive differentiation in the marketplace to maximise the shareholder value legally, ethically, and on a sustainable basis while ensuring fairness, transparency and accountability to every stakeholder of a company that is customers, employees, investors, partners, the government of the land, and the society or the community.
Governance is a reflection of the values or the culture of a company’s board and management. Good governance in a company enhances the confidence, trust, and enthusiasm of its stakeholders. Due to SEBI (Securities and Exchange Board of India), corporate governance levels have improved considerably in the last three decades. However, during the last five years, there have been a few instances of serious governance deficits. In some listed companies, this has created doubts among investors, notably international investors about the corporate governance of Indian companies.
The primary functions of a corporate board include ensuring a robust quality growth of both the top line and bottom line of the company. Protecting and enhancing the reputation of the company in every action that the company takes, reviewing, critiquing, and improving the strategy presented by the management. Setting clear responsibilities for both the top, mid and bottom management, putting in place information, control, cheques and balances, and ensuring that they are working, ensuring full compliance with regulations required by every statutory authority of the land, getting capital and revenue budgets prepared after informed discussions, reviewing acquisitions and mergers.
There are 3 key players in a corporate governance system:
- Shareholders, who are owners of the company in proportion to the number of shares in the company
- The Board of Directors is responsible for the governance of the company that oversees the management
- The management that runs the company and reports the business to the rest of the company to the shareholders
Good corporate governance should be made mandatory in India for that we have to create a climate of opinion that respect is more important than wealth and power. Before taking any decision, if the board and the management were to debate if such a decision would indeed enhance the respect of the management then the decision is definitely a good one.
So, how do we create good boards? This can be done by appointing a person of character, competence and commitment to be the Chairman of the board. The selection of a Chairman is attributed to the success of the Board Room. Besides, the board members should be experts in the field of strategy, acquisitions, finance, sales, manufacturing, R&D and human resources. These people may be taken through robust training for a certification programme on boardroom handling.
There should be an evaluation of each member of the board. This exercise is handled by the Nominations Committee. The Chairman of the Board then sits with each Board member, evaluates them and discusses the improvements. The Chairman’s performance is assessed by the Lead Independent Director. Finally, he added that the crucial responsibility of the Board is also to protect and enhance the reputation of the company.
Watch the full Session- https://www.youtube.com/watch?v=HlxFljxlmmg