Innocent of intricacies

The most common charge levelled against administrators and bean counters is that they are often innocent of domain knowledge and are obsessed with budgets and cost-cutting.

Profit- obsessed top managements tend to listen more to the administrative viewpoints much to the chagrin and dismay of those well-versed in the bread and butter applications of an organisation, is the collective lament.

The Standing Conference of Public Enterprises (SCOPE) has gone on record bemoaning the lack of domain knowledge of independent directors of public sector companies. According to it, many of them are direly in need of induction training that threatens to shorten the useful span of their three-year tenured sinecure.

Independent directors are supposed to bring their unique expertise to the table and act as a sounding board for the more hands-on executive directors, besides watching over the interests of the public shareholders.

But the experience the world over is nothing to write home about. If anything, it is depressing. The two scams of epic proportions — Enron in the US and Satyam in India - happened under the very noses of independent directors.

Wrong expectations

Indeed, policymakers have got it wrong when they expect independent directors to have a sobering influence on the rapacious executive directors. And they are even more wrong when they expect them to play the whistleblower role.

The shortcomings of the institution of audit cannot be made up by the once-in-the-blue-moon independent directors. That independent directorships have become the happy hunting ground for retired bureaucrats in countries marked by dirigisme and for successful professionals- turned-socialites is common knowledge.

Air India's mess and steady descent into nothingness couldn't be stemmed by a battery of independent directors, some of them drawn from the tinsel world. Successful advocates have always found berths on boards of companies. It is another matter that their eyes are always on the litigious possibilities a corporation teems with. Retired successful bankers are the flavour of the season, especially with failing and flailing companies.

Norms for selection

This is not to berate independent directors and question their relevance. The point is independent directors are handpicked by the promoter-directors in private sector often for extraneous considerations.

SCOPE swings to the other extreme and recruits them for public sector companies after inviting applications!

As a sequel to this worldview of independent directors, now they are proposed to be rated on a performance matrix in view of the sobering realisation that many of them remain mute spectators in board meetings, primarily due to lack of domain knowledge. In a country where celebrity status is perceived to be the sole prerequisite for independent directors, well-meaning initiatives like the one by Prime Database to maintain a panel of putative independent directors was lauded, but has come a cropper.

Independent directors ought to bring about knowledge addition in board meetings. A successful doctor can contribute immensely to the board meetings and business of a pharmaceutical company just as a successful geologist can to the fortunes of an oil exploration company.

An independent director should be a self-starter instead of being the one requiring extensive induction training and performance rating. Lest they are picked for wrong reasons, independent directors must be made to pass the litmus test of relevance may be through an honest appraisal by independent auditors.

The move to limit independent directorships to five from the extant fifteen by the Companies Bill, 2009 is a step in the right direction because it is not uncommon for such directors to desultorily flit from one board meeting to another, wearing directorships, and not essentially independence, as badges of honour.

Policymakers should learn to scale down their expectations from independent directors who by the very nature of their part-time approach cannot be expected to deliver a great deal to a company.

Fortunes of Fortune 500 companies have been made by the relentless, hands-on work of the executive directors.

It is wrong to believe that pitting them against independent directors would bring about a reduction in executive high-handedness and outreach. That role must be reserved for auditors.

(The author is a Delhi-based chartered accountant.)

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