Joining as an Independent Director?

Balancing Expertise with Values, and Evaluating Opportunities with Confidence
The decision to join a board as an Independent Director is an important one.
The position of an Independent Director is crucial and entails a great deal of responsibility. Independent Directors play a key role in providing strategic direction, effective governance, and oversight of a company.
Before deciding which board to join, it is important rather, imperative to understand one's own strengths and assess if one is fits for the role to be an effective Independent Director.
The first and foremost requirement to be an Independent Director (ID) is Business Experience.
Business experience brings with it maturity, an understanding of the complexity of businesses, awareness of the impact of various decisions on the overall business landscape, and a focus on the interests of all stakeholders and shareholders. Last but not least, it instills an understanding of the importance of values, integrity, and compliance. Today, even young entrepreneurs bring a deep understanding of business. In fact, I believe they have a better grasp of consumer preferences, the Gen Z mindset, and fastchanging technology, which allows them to add value in areas such as marketing, delivery, and building efficient processes and systems.
Business leaders aspiring to be on boards should keep themselves abreast of technology, the new-age customer mindset, the state of the economy, and the role of different sectors in contributing to economic growth.
Aspiring board members must also understand financial statements. Regardless of industry or field of expertise, a basic understanding of financial statements is critical. One must be able to interpret P&L, balance sheets, cash flow statements, and key ratios to analyze the current state of the business.
There are many other factors that contribute to being an effective ID, such as communication skills, understanding the relevant business landscape, and knowledge of the regulatory environment. However, let's focus on the topic at hand: how to decide which boards to join.
Assess that the company is not only relevant today but future-ready too, particularly in the field of technology and talent acquisition.
Understand Financials of the Company
First & foremost, if you have an offer to join a company, look at the latest annual report of the company in particular, the financial statements, which give an insight into the financial health of the company, in addition to the size and scale of its operations. If the financials are at variance with the industry and specific sector, one may like to understand the reasons for the same. I remember, as an executive director in LIC, I was offered to be a nominee director on the board of a company. When I looked at the financials of the company, it was making huge losses whereas the sector was doing well. I requested a change, which was given.
A few years later, I came to know that the company was not in a position to repay debts, and all directors, including nominee directors, were under the regulator's lens.
I don't say well-governed companies can't make losses or loss-making companies are not a good option. Most of the successful start-ups will not be making profits as they are on a trajectory of customer acquisition, brand building, and growth in the top line. Further, many times one may learn or contribute much more in challenging circumstances, but what we need to understand is the reason for weak financials, if any, before accepting the position. It may also be helpful to go through the auditor's report, the directors' note in the annual report, the credit rating, the amount of debt, the debt-equity ratio, etc.
1. Values, Mission, Vision, Culture of the Company
One must ensure that her personal values match those of the company one aspires to join.
"When choosing a company to serve as an independent director, look for alignment with your values, expertise, and interests. It is a twoway street; you want to add value to a company, and the company should align with your personal brand." - Ira Millstein, Columbia Law School
Values of integrity and ethics are ingrained in the DNA of most companies. The culture of concern for all stakeholders, customer centricity, corporate governance, sensitivity to social responsibility and accountability, and focus on compliance are some of the factors that should be looked into.
"As an independent director, you are not just joining a company; you are joining a community. Look for a company with a strong culture, a clear vision, and a commitment to good governance." - Jeffery Sonnenfeld, Yale School of Management.
2. Industry & sector
It is best to join a company where one has the experience and expertise, at least while starting the journey of being an independent director. Of course, companies also impart induction training and orientation programs to new directors. Slowly one can diversify the portfolio to enter new segments.
3. Evolution stage of company
Business dynamics will differ in a small-scale company, startup, or well-established conglomerate. Role & responsibility of ID will also change according to the size & scale of the company. For example, in a start-up, promoters may be more inclined towards growth, valuations, and raising money, and less focused on governance and compliance. In such a case, responsibilities of ID increase to keep the team on track. Many times there is temptation on the part of first-generation entrepreneurs to compromise on the integrity of data, numbers, revenue recognition, etc., due to various reasons like expectations of investors or growing fast to become a unicorn, etc. An ID in a startup has to be very mature, alert, and assertive to ensure right decisions on the board and avoid shortcuts or short-term temptations.
4. Future-ready
Another factor that is relevant in today's business environment is to assess that the company is not only relevant today but future-ready too, particularly in the field of technology and talent acquisition. Today technology is evolving fast, and businesses need to be future-ready to adapt to changing environments.
5. Miscellaneous
Some other factors that may be considered are whether the company is promoter-led or has diversified ownership, board dynamics and culture, attrition of KMPs, particularly at the CFO level, time commitment and expectations, compensation and benefits, learning and growth opportunities, the reputation & credibility of the company, networking opportunities, etc.
When evaluating a company, consider its reputation, financial health, and industry trends. But also look at Board's dynamics, the CEO's leadership style, and company's commitment to transparency and accountability." -Sir Richard Lambert, Former Director General, Confederation of British Industry.
In the end I would only say that joining a company as an independent director is an excellent option to share your experience, expertise and values with industry, but be prudent in selecting the company as the role entails legal, moral, social and ethical responsibility.
Author

Ms. Usha Sangwan
the first woman Managing Director of LIC (2013–2018), brings over 37 years of expertise in the insurance and finance sectors. She currently serves as an Independent Director on the boards of Tata Motors, Tata Technologies, Torrent Power, SBI Life Insurance, Trident Group, and others, offering strategic insight and leadership excellence.
Owned by: Institute of Directors, India
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