What explains the turmoil that can be seen on the boards of respected and old firms like Tata Group and Infosys? originally appeared on Quora - the place to gain and share knowledge, empowering people to learn from others and better understand the world.
The recent conflicts in the board rooms ofand mark a welcome change in Indian boardrooms, where conflict is not only happening but is also being brought to public attention. This is a remarkable shift in the face-saving culture that often marks both Indian society at large and the broader Indian corporate culture. Conflict has been absent, as evidenced by and only resigning under duress, or otherwise swept away quietly when a dissenting director quits a board, of which there are too many examples widely known but not often reported in the Indian media.
The turmoil is a complicated matter and not untimely or unexpected.
In conversations with well-known business leaders in India, I learnt that many see serving on boards as a favour to the person or persons, who asked. Dwell on that for a second! I did. Promoter-led companies are among the biggest companies and groups in India. In these companies, people who serve on the boards of directors serve "at the pleasure of the promoter", to put it bluntly. Since back-slapping bonhomie is involved in the appointment, those directors, who do serve, see it as a favour rather than see it as a job requiring high integrity and discharge of the fiduciary duties of care towards the shareholder. Wait, did I say shareholder? In promoter-led companies, the promoter indeed is often the biggest shareholder so directors perhaps aren't doing anything wrong by owing a duty of loyalty to the founder. So, technically, all is fine if the director sees him/herself working for the interests of the shareholder, even while seeing the work as a favour s/he is doing the promoter, and gets paid for it nonetheless. In such a set-up, however, the promoter does not expect nor tolerate any semblance of dissent or challenge, never mind legal duties owed by the director. Nor did many board directors try.
These board directors often were picked for their contacts. e.g. Former cabinet secretaries seem to be a popular choice for boards. Through their long careers, they have known politicians of all hues as well as people, who actually run various departments and deliver for the country. In thedays, these retired luminaries were very useful in working the system favourably for the promoters. Former ministers were also often picked for similar possibilities. It is disingenuous to believe that many of them actually attended board meetings or got involved in the workings of the business beyond executive summary documents or board minutes. Ergo, no boardroom conflict.
Over time, particularly in the last two decades, promoters and their companies moved towards professionalisation. This meant, in the first stages, hiring professional managers to do the work and grow the company's business at home and abroad. The ambition needed capital and that need was increasingly served by going public. This diluted promoter ownership and created distributed ownership structures among several institutions and also some individuals, including early employees and sometimes senior managers. This was an altogether new context for governance in these companies, one that holds promoters accountable and enforces the individual-v-company separation rather stringently. Promoters however, rightly or otherwise, are unable to dissociate emotionally from their creation where, in many cases, they still hold vast equity. While the new context requires that boards behave differently from how they did before, the promoters, who are still involved, wish to keep control of the strategic direction and key decisions, hence the friction arising.
This is more than a "generation gap". This is a gap in ambition, expectations of control and accountability, as well as how various people define "professionalism".
The professionals in charge of these companies have global ambitions and they do not tie their careers or fortunes to any given company the way promoters are tied to their companies. They believe in behaving professionally, as the word is understood worldwide, and work to build and protect their reputations rather than serve the interests of the promoter alone. They therefore approach their work with far more conscientiousness and dispassion, and defend their decisions as well as their independence and legal stature in the companies ferociously. Many of these professionals have lived and worked in large multinational corporations in many countries. While their networks and influence are vast, so is the risk to their professional reputation, should they take wrong decisions while in the limelight. Promoters are not always able to cope with the resulting demands being made on them to relinquish control and fall in line with the new expectations of good governance in this new dynamic.
This is a whole new paradigm of professionalism at work.
Much like the rest of India, the "respected and old companies" are in a. While the new normal is yet to emerge, the old normal is certainly not holding up. These board room conflicts we are seeing are illustrative of that shift underway.
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