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The Power and Accountability of a Boardroom: Shared Responsibility at the Top
Ultimately, the Board is accountable to the stakeholders and responsible to ensure that the enduring long-term goal, the North Star is never missed.
Look at the cases of Satyam, ICICI bank, Jet Airways and the infamous Enron, we can see that 'The Board' inevitably shares the blame for a major failure at a company.
The reasons could be many but inadequate oversight and governance from the Board do play a big role. And it does raise questions around the quality, role, functioning and accountability of the Board.
I have the privilege of being an Independent Director on two global, publiclisted, extremely well run and effective Boards, and am often surprised and shocked at published research related to Board performance that highlight state of dysfunction on some Boards: focusing mainly on compliance, the lack of true independence and strategic intent and most of all the level of Yesman-ship. If the purpose is to achieve statutory compliance, I suppose these boards do serve the purpose but what a missed opportunity for the company to leverage an experienced independent team to help them navigate the complexity of today's business environment and use the collective brain power to forge ahead and win, not just in the present but also prepare for a robust future.
Understanding the Role of the Board - its Governance not Management
One of the first questions I was asked at an interview for a Board position was how I saw my role as an independent director versus the management of the company. This was the first of a series of five interviews and I could understand their concern on whether candidates understood the role, the value they can bring to the table and whether they can truly help in transforming the business and help it achieve its business and stakeholder goals.
While we talk about accountability at the Board, there is a clear line between the Board and the Management, that needs to be respected. I have had to frequently resist the temptation to deep dive into operational details, ask for more analysis, look for solutions to fix a specific problem, etc. That is the role of the leadership team. At the same time, it is also not about rubber stamping decisions made by the Management without adequate checks and challenges. For instance, directors must ensure whether a proposed acquisition truly makes strategic sense, whether it is at the right valuation, what synergies can one expect and what value it is likely to create. Equally important is understanding the risks associated with a specific decision that could have a material impact on the organisation.
However, it does make sense to leverage expertise of Board members to help with specific areas. It was only a couple of times that I did get involved at a deeper level to work with the management and project teams, and that too at the request of the Board and the CEO. Once it was to evaluate a technology asset coming through an acquisition, and another time it was to validate an investment project which was in my area of expertise.
Selection of the right Board members is as critical as selecting the right CEO and leadership team! Together, the Board needs to meet the acid test of expertise, experience and independence needed to steer the company.
Moving on from Compliance and Oversight to a Value-adding Strategy
Compliance is important; so is effective oversight. These are necessary and non-negotiable hygiene factors. The role of the various Board committees: Audit, Nomination & Renumeration, ESG etc. are critical to get an assurance on the performance, risk and quality of management of the company. Beyond this, it is crucial that the Board focuses on and challenges the management on future-proofing the company, making it more resilient to economic downturns, geo-political and other risks but also seizing the opportunity made possible by advancements in technology, new markets, new business models etc.
I cannot honestly say that I fully grasped this on Day 1, but over the last 12 years or so of serving on Boards, I often put myself in the shoes of the CEO and management of the company, and I constantly question where the Board is adding value and if we are just in an 'oversight' mode, or challenging the CEO in a meaningful way. Are the points we raise a distraction and an added burden on the CEO's time or genuinely helping the company move forward?
For example, supply chain issues have emerged as one of the top challenges in a global business in the post-COVID era. The Board could just listen to the impact on business and numbers and talk about transactional options like alternate supply routes, new sourcing approaches etc.; or ask to look at the medium to long-term supply chain strategy covering manufacturing locations, warehousing and distribution approach, geographical footprint, expanding make-vs-buy capabilities, the technology backbone, as well as a comparison with the approaches adopted by key competitors.
Evolving Board Competency – Mirroring the Changing Landscape
Working more on a strategic agenda of course assumes that we have a Board that is diverse in its experience. At a wellfunctioning board, it is evaluated very objectively: the experience of each Board member is assessed, and whether it cumulatively covers the expanse of what is needed, based on the nature and complexity of the business. This typically spans areas such as Finance, Strategy, Technology, Manufacturing, Trading, Risk Management, Industry knowledge, ESG etc. Now with the introduction of AI, every Board member needs to understand its impact and the opportunity that it offers to transform the business. Again, I have seen Boards constantly looking to ensure that they are up-to-date on what is essential and organise an awareness or training session on relevant topics.
Selection of the right Board members is as critical as selecting the right CEO and leadership team!
Together, the Board needs to meet the acid test of expertise, experience and independence needed to steer the company.
Is a good Board a necessary condition for a successful well-run business?
One could argue that a good CEO and management team could achieve these results and they will very often do. But someone appoints the CEO! Someone is evaluating CEO performance in good and bad times. Someone is planning for CEO succession well in time. Someone is asking the right questions! And that someone is the Board, especially in non-promoter led companies. Having seen leadership changes, market upheavals as well as spectacular results, there is one point that I am very sure of: leaders change, markets change, results change but ultimately the Board is accountable to the stakeholders and responsible to ensure that the enduring long-term goal, the North Star is never missed.
Disclaimer Note: This article presents personal views of Aruna Jayanthi and does not represent the views of either Capgemini or the companies she works on as a Board member.
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Ms. Aruna Jayanthi
She brings over 26 years of leadership experience at Capgemini, where she served as CEO of Capgemini India from 2011 to 2015 and currently leads operations for Canada and Latin America. Since 2015, she has been an Independent Director on the Supervisory Board of Michelin Group. She joined the Board of Barry Callebaut in 2024 and was an Independent Director at SBI Capital Markets from 2012 to 2016. Ms. Jayanthi has also served on NASSCOM's Executive Council and chaired the Board of NIT Calicut. She is a recipient of the French Knight of the Order of the Legion of Honour.
Owned by: Institute of Directors, India
Disclaimer: The opinions expressed in the articles/ stories are the personal opinions of the author. IOD/ Editor is not responsible for the accuracy, completeness, suitability, or validity of any information in those articles. The information, facts or opinions expressed in the articles/ speeches do not reflect the views of IOD/ Editor and IOD/ Editor does not assume any responsibility or liability for the same.
