Indian Institute of Management-Ahmedabad don and ET columnist T T Rammohan made a telling critique of the functioning of independent directors on company boards on Dec 9.
Research shows that standard prescriptions to raise corporate governance have all failed: separation of the offices of the chairman and the CEO, having a quota of independent directors, having directors with domain knowledge, knowledge of finance and auditing, etc. Corporate governance, despite the best efforts of the regulators and policymakers, remains a check-the-box exercise.
Prof Rammohan then goes on to critique a solution offered by Harvard Business School senior lecturer Robert C Pozen, of making independent directorships a profession itself, and of reducing the size of the board to seven: the CEO and six independent directors. Four of them should have domain expertise, one should have expertise in accounting and only one should be generalist. But how can a director be expected to act in a truly independent manner when the remuneration and perks for his services are borne by the company?
In many instances, remuneration includes all-expenses paid holidays for self and spouse, loads of stock options and other goodies. What could, however, help is independent thinking and action by nominees of the institutions who have invested in the company, suggests Prof Rammohan. As Prof Rammohan points out, sincerity, commitment and willingness to rock the boat in the pursuit of management accountability to shareholders count more than knowledge and expertise.
Read more.
Research shows that standard prescriptions to raise corporate governance have all failed: separation of the offices of the chairman and the CEO, having a quota of independent directors, having directors with domain knowledge, knowledge of finance and auditing, etc. Corporate governance, despite the best efforts of the regulators and policymakers, remains a check-the-box exercise.
Prof Rammohan then goes on to critique a solution offered by Harvard Business School senior lecturer Robert C Pozen, of making independent directorships a profession itself, and of reducing the size of the board to seven: the CEO and six independent directors. Four of them should have domain expertise, one should have expertise in accounting and only one should be generalist. But how can a director be expected to act in a truly independent manner when the remuneration and perks for his services are borne by the company?
In many instances, remuneration includes all-expenses paid holidays for self and spouse, loads of stock options and other goodies. What could, however, help is independent thinking and action by nominees of the institutions who have invested in the company, suggests Prof Rammohan. As Prof Rammohan points out, sincerity, commitment and willingness to rock the boat in the pursuit of management accountability to shareholders count more than knowledge and expertise.
Read more.
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