It is true that culture significantly influences an individual’s behaviour. As globalisation has led to newer cultural juxtapositions, it is pertinent to ask how organisations can prevent culture clashes and encourage the right behaviours. As the Russian-American writer and philosopher Ayn Rand said: “A culture is made — or destroyed — by its articulate voices.” Therefore, the right organisational culture begins in the boardroom.

A majority of Indian companies are promoter-driven and the promoters exert considerable influence over the company’s affairs. Even where promoters are not the majority shareholders, their contribution to the company’s growth story ensures their voices are heard. Due to this strong influence, their prejudices, inhibitions, and values greatly influence the boardroom culture and, in general, the organisation’s culture.

While there is a positive side to this, it can also become a serious impediment if it fosters a culture where

the promoter’s aura clouds the judgement of directors, especially independent directors, and they tend to ‘tow his/her line’;

open and contentious debate is discouraged; and

there are power factions within the board.

Therefore, to get their boardroom culture right, companies need to

appoint the right people;

convey the right tone at the top; and

adopt the right norms/ practices.

It goes without saying that promoters have to lead from the front here.

Appointing the right people involves giving importance to factors such as the current skill-level of the board, future skill-set requirements, the degree of board independence, effectiveness of the director selection process and the degree of boardroom diversity. To begin with, it would be prudent to appoint an independent, non-executive director as the Chairman. If this is not feasible, companies should at least appoint a lead independent director. The UK’s Financial Reporting Regulatory Council suggests that in normal times this director should act as a sounding board for the chairman, and in periods of stress he/she should assume the role of a mediator in resolving conflicts/ issues.

Secondly, companies should ensure that the director’s appointment is a formal, independent and transparent process, especially in the case of independent directors. This would involve establishing an independent committee (comprising and led by independent directors) to supervise director appointments and hiring an independent agency to scout for potential candidates. This committee should develop a structured approach for director appointments by

mapping the strategic priorities of the company to the skill-set requirements at the board level;

developing a skill-set matrix at the board level, highlighting current skill sets and future requirements; and

ensuring board diversity in terms of skills, experience, gender, nationality, ethnicity and behavioural types.

To be able to convey the right tone at the top, company boards should practise what they preach. For instance, if inculcating ethical behaviour is a key priority, the board should not only establish a code of conduct for the company but also demonstrate how strictly it has adhered to it. Boards should also guide the management in establishing appropriate policies and procedures and leveraging performance management mechanisms to reinforce desirable behaviour.

Some of the other progressive norms and practices that assist boards in establishing a culture of openness and accountability include:

holding executive sessions with auditors and key management personnel;

committing time to visit company offices/ plants/ stores and directly interacting with line managers;

engaging in continuous education through periodic training sessions; and

periodic third-party/ self-assessment of the board’s functioning.

One-on-one sessions between the non-executive directors and the management/ auditors provide great opportunities for directors to ask individual managers tough questions on the management’s assumptions and decisions and get candid feedback. Similarly, site visits and interaction with junior employees can help directors read the pulse of the organisation and get hands-on experience of how the company works.

Openness to third-party/ self-assessments and continuous education helps boards enhance, individually and collectively, the effectiveness of its directors. Also, more importantly, board assessments provide an indirect but effective way to gauge the performance of the management and the company as a whole.

Ultimately, a key factor that differentiates effective boards from the rest is their ability to get the softer/ cultural aspects of governance — such as leadership, accountability, diversity, equality and transparency – right.

(Raajeev B. Batra is Executive Director, KPMG)

Related Topics