New Age Board Activism: Heralding Better Corporate Governance
By,
Sabyasachi Dutta
Whole-time Director in a British MNC in India
According to Section 149(1) of the Companies Act 2013, a company in India must have a Board of Directors with a minimum of three Directors in a public company, two in a private company, and one Director in a one-person company. A company can have a maximum of fifteen Directors with at least one of them being a woman.
Functionally, routine activities of companies are run by CEOs and their CXO confidantes, while adhering to timely ‘guidance’ from their Boards. The constituent Directors are supposed to perform ‘pulse checks’ regarding the company’s ‘health’ regularly and raise red flags if they notice anything unacceptable. Boards should be like lighthouses, providing strategic guidance and holding the bar of governance together with unbreakable adherence to ethics and integrity. The composition of a Board should preferably be diverse, with Directors contributing rich insights based on their various professional backgrounds and fields of expertise.
But often situations turn messy as Board members become combative, resulting in slugfests, as noticed in the case of Byju’s in India or OpenAI in the USA. Nissan and Olympus Board issues in Japan were followed by many with intense curiosity not so long ago. And, how can one forget the epic boardroom tussle involving Mr. Ratan Tata and the late Mr. Cyrus Mistry that resulted in the latter’s ouster as the then Chairman of Tata Sons?
In recent years, many Boards have undergone a perceptible change. Transitioning from apparent passivity displayed in the past to now actively engaging in what is termed ‘New Age Board Activism’. This contemporary approach to corporate governance reflects a fundamental shift in the way Directors on a Board engage with multiple stakeholders with an implicit intention to push for long-term value creation. A desire to drive positive change benefiting the organisation may not miss the attention of sharp eyes and usually gets appreciated. Directors don’t hesitate anymore to air their thoughts, even going against the grain at times. They ensure robust deliberations, exploring multiple perspectives before arriving at a consensus on decisions that can have lasting effects.
Another facet that has come under sharp focus is the role of ‘Independent’ Directors on the Boards. They have gained prominence as many think they substantially add heft to the Boards through their array of knowledge and probity, in contrast to playing second fiddle, as often noticed earlier. They should be truly ‘independent’ and preferably be at arm’s length from the company’s activities to enrich Boards with their varied insights while bringing in transparency and accountability, if found missing.
Traditionally, Boards used to be obsessively focused on maximising shareholder value. However, in today’s dynamic business environment, they need to look at not just shareholders but also employees, customers, communities, and the environment as other important metrics.
Some other aspects noticed in Board activism are fostering trust and credibility, introducing diversity and inclusion, adhering to ethical business practices, and resilience to withstand sudden negative impacts like massive supply chain disruptions due to COVID-19 or the Russia-Ukraine war. Boards are increasingly getting attuned to the societal impact of their organisations and taking proactive measures to address multi-prong challenges in today’s dynamic business world.
In conclusion, New Age Board Activism has brought a paradigm shift in Corporate Governance, deepened stakeholder engagement, stressed transparency, and set new benchmarks for ethical leadership. By embracing these principles and practices, Boards can not only navigate complex challenges and seize opportunities but also contribute to a more equitable, sustainable, and prosperous future for their businesses.
(Views expressed here are personal.)
• Sabyasachi is a business executive with more than two decades of corporate experience spanning across the globe. Writing is a passion for him. (He primarily writes on buzzing management and leadership topics.)
