There is much discussion on corporate governance these days. Especially after Satyam, Industry associations have had important committees report on the characteristics of effective company boards. Much of the discussion has focused on the procedural aspect and spelt out quite finely what size, composition and structure an effective board should have. The issues discussed are all important, but frankly, in and of themselves rarely create an effective board. An effective board requires three qualities in its board members.
These qualities are, if you think about it, quite obvious, but unfortunately in short supply. 1. The Board members should be wise rather than clever. The Webster dictionary describes the meaning of clever as skilful, mentally quick or resourceful, but often lacking in depth and soundness. Being clever is being sharp, quick and bright. The dictionary meaning for wisdom is accumulated philosophic or scientific learning i.e. knowledge.
It further describes the word to be the ability to discern inner qualities. In essence it combines intelligence with prudence and astuteness with experience. It has a lived in look about it and is often a bit slower. In selecting board members, companies would do well to look for wise people on the board. Wise men are typically secure, are willing to be corrected, but not afraid of speaking their mind. 2. Board members should be adults in the true sense of the word. Adults can challenge a point of view without attacking the person making the suggestion. They don’t need to score debating points but rather wish to further a discussion to arrive at a more informed decision. A board with an open culture is one where people can speak their mind freely without having to worry that they are hurting people.
It is a culture where there is no need to maintain a fraudulent surface political correctness of agreement when there are deep underlying misgivings on any issue. In such a board, people do not withdraw from the conversation or sulk when others offer alternative view points but in fact welcome these contributions because they believe that the final decision will therefore be superior. And after a decision is taken, everyone supports it because the discussion was robust and open. Taking one of Obama’s great phrases, a good board has people who can disagree without being disagreeable.
3. The board members should respect each other even though they have diverse backgrounds. If everyone has the same social and academic background and similar work experience it is very likely they will read the environment in the same way. This does not serve the company well. So people should be brought on to the board to obtain perspective on specific areas. This works well only if the board members can respect each other.
Finally the area on process that has not received much attention in the reports is a discussion on the basic prerequisites. This is the basic infrastructure of a good board — the roads and the power supply — without which a board can never be effective. This is the basic stuff. The calendar and location of board meetings have to be set at the beginning of the year and not changed without real cause. Board materials need to be sent in advance of the board meeting. Board agendas have to be set with care and to be agreed with the board members.
What goes up to the board and what does not, has to be discussed and decided — this is rarely done. The agenda needs to run to time and discussions have to be real and meaningful. All too often, board agendas are dense and set with no relation to the amount of time available. In such cases the board is a rubber stamp and what is even worse is when board decisions are not clearly recorded during the board meeting.
Effective boards do the difficult things well. Their board members respect each other; they talk openly and freely and have a long term perspective for their companies. They ask the hard questions and yet support their management. They do not spend their time boasting about a shallow compliance with some procedural rules. They do the real thing.
As the world gets more global it is important that different nationalities are represented in multi-national company boards. One of the key requirements for companies is to get perspective on the environment which is disparate. But disparate cannot mean representation of a very narrow constituency only. Everyone must discuss everything and be willing both to speak and to listen. This is greatly facilitated if board members have mutual respect.