The Hindu Business Line : The duties of company directors

Inaugurating the third Corporate Governance Summit of the CII at Mumbai on December 12, the Chairman of the SEBI, Mr M. Damodaran, made some pertinent observations on the role of the directors on boards of companies. They sprang from the basic premise that, as he put it, "the boardroom is centre-stage to corporate governance" and the manner of their functioning can make a lot of difference to the company's performance.

There will be instant agreement with his proposition that directors should not just `grace' the board, or that they should not overstretch themselves by being on too many boards. Indisputably, a person is taken as a director, not for the sake of his eminence, but in the expectation that he would take deep and abiding interest in the affairs of the company and ensure that it lives up to the stake-holders' expectations in terms of accountability, transparency, social responsibility and return on investment.

As chairman of a few boards in my time, I used to notice with amusement, tinged with concern, that outside directors opened the agenda papers only on coming to the meeting, adlibbed agreeably on the spot on the issues raised, collected the sitting fees and departed.

In my experience of four public sector and two private sector enterprises, directors who came thoroughly prepared and made their points forcefully and effectively could be counted on the fingers of one hand. Noblesse oblige was generally the spirit that permeated board-rooms.

Beings persons of breeding, directors do not want to be prying or disputatious. I do not know whether there has been any change since in the amiable give-and-take marking boardroom exchanges.

On the other hand, an overly prescriptive board, as Mr Damodaran has mentioned, could dampen the initiative, creativity and innovativeness of the CEO. Obviously, there is need to strike a balance between undue inquisitiveness on the board's part and its legitimate right to full information before consenting to a course of action.

The CEO himself can help avoid ticklish situations by anticipating all possible reservations and countering them convincingly in the write-ups circulated to the directors. Also, he should avoid springing on the directors complex proposals for their ratification or approval at the board meetings, leaving them little time to go into its feasibility and implications.

Unrealistic On the role of government or institutional nominees on the boards, there is as yet no clearcut answer to the question raised by Mr Damodaran as to whether their responsibility should be exclusively to the government or the institution nominating them, or to the larger interest of the stake-holders of the company. Again, drawing on my experience, the government or institutional nominees tend to play safe by putting forward the viewpoints of the government or the institution, and blocking any proposal not in line with them, however desirable it may be in the overall interest of the company.

It is unrealistic to expect them to do otherwise as the intention of the government or the institution in nominating them is to safeguard its stake in the form of equity or loan. Their agreeing to decisions contrary to existing policies and precedents may lead to the government/ institution facing ugly repercussions in matters falling within its control.

Finally, as Mr Damodaran suggested, there should be a limit to the number of companies of which a person should be allowed to be a director. If a person is to do full justice to his duties in this regard, on the basis that a board meets four times a year, membership of four boards - which means attending a meeting every month - will be the maximum that a person would find comfortable to manage. This should be laid down as the statutory ceiling.

B.S. RAGHAVAN

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