Saturday, April 15, 2017

Corporate scandals- the board is the problem

Companies worldwide face scandals. (In India, we call them scams. I guess the difference between a a scandal abroad and a scam here is that there is retribution in the former and none in the latter).

It's no use exhorting managers to behave better. We must accept that those at the top will have the opportunity to misbehave- and many will use that opportunity.

The answer is for boards to get their acts together. Cliched as it may sound, we go back to corporate governance. I have been arguing for long that the answer lies in board room diversity. This is more than gender diversity (although that is certainly an important part of the answer). It means getting different views and perspectives into the board room. This cannot happen as long as board members are chosen from the same narrow club of retired and serving corporate executives and retired bureaucrats, the people who get to playing cards and billiards in the same elite clubs - when they are not playing games in the board room itself.

British Prime Minister Theresa May seemed to be on to something when she argued for a place for consumers and workers on boards soon after she took over. But British industry has stoutly resisted and we haven't seen much of these proposals. An article in FT writes of how deep the aversion to change runs in the UK:

A ......British government report expressed concerns that worker directors would lead to greater conflict in board discussion, slower decisions and “the risk of decision-making shifting away from the boardroom and into less formal channels”. It was an insight into the kind of boardroom thinking that seeks any excuse to avoid challenge from those with a different perspective. The message was that “we want to continue with things our way and if you make us have these people on our boards, we will simply have the real discussion behind their backs”.

.....The corporate elite was far too quick to shout down the idea of worker directors, just as it has been too slow to welcome women and minority groups. In the UK, employees are accepted on to pension trustee boards, where they are often highly commended for their ability to ask the right question and to identify the very heart of a matter. Boards can learn from that and from the limited experience of adding female directors, who have brought a different point of view into the boardroom.  

And what if boards fail to act? Well, governments everywhere have to use the big stick. In India, the government should moot the idea of having SC/ST quotas on boards- in a way, this would amount to worker representation as well. It would a big blow for governance and a blow for affirmative action as well.

1 comment:

Amit Kumar said...

In 2nd paragraph 2nd line it should be "those aboard" in place of "those abroad".