Book Review:
Inside the Board Room- How Behaviour Trumps Rationality”
By R Gopalakrishnan and Tulsi Jayakumar,
Rupa Publications 2023
On Board
The authors of this timely book; R Gopalakrishnan with his
over 55 years of experience in leading Indian Corporations in various
capacities from a trainee engineer in Hindustan Lever to leadership of several
boards and Tulsi Jayakumar interested in family businesses, as an academic
teaching management studies, have provided us with a delightful and useful
work.
As the name suggests the book deals with what happens in a
board room of different types of companies; professionally managed, family
owned, promoter driven, large and small enterprises.
While the owners’, promoters’ role in the business dynamics
of an enterprise is also discussed the focus of the book is the role of the CEO
and the independent directors on the board.
The book briefly traces the evolution of corporate India’s
board room particularly in the light of Cadbury Committee recommendations in
1992 in UK and the churn that resulted in the J J Irani Committee recommending
changes in the Company law in India that led to the new version of the Company
Law in 2005.
The Cadbury Committee had recommended that companies
voluntarily accept: separation of roles of chairman and CEO; a majority in the
board of independent directors; non-executive directors to be in the majority
on the remuneration committee and playing active role in the audit committee. Though
it was a UK focused report it had great influence on the evolution of corporate
governance internationally.
Even in India it led later to the introduction of
independent directors in all public companies, though not a majority; awareness
about women in board rooms; need for diversity among independent directors in
general and so on.
In this reviewer’s opinion the book is compulsory reading material
not only for all corporate board members but also for management students and
students aspiring to become company secretaries, compliance officers, market
analysts and equity researchers etc.
The authors however continually stress that mandated or
voluntarily accepted compliance standards and norms go only thus far and no
further like the laws and constitutions. A more important and tricky factor in the
board room, the authors point out, is behavioural. They posit that these issues
play a very important role in board room dynamics.
That is what makes this slim book an interesting read and
novel in approach.
They illustrate their thesis with innumerable cases studies
of business failures that can be traced back to board room dynamics that
stymied any course correction in time for these corporations. They draw their
brief lessons; without falling into to the pitfall of merely compiling case studies
in corporate governance; from the global as well as Indian corporate history.
The pages are enriched by a wide variety of stories from Enron,
Worldcomm, Unilever, Lehman Brothers, Nestle, Rajat Gupta episode and dozens of
others from global corporations. From the Indian corporate sector we have
examples from YES Bank, Kingfisher Airlines, Ranbaxy, Satyam, Jet Airways, Tata
Finance, HLL and several unnamed ones narrated anecdotally by R Gopalakrishnan.
The personal experiences and anecdotes from more than 20
company boards of which “Gopal” ( a third person short form used by R
Gopalakrishnan in the book) was a part of; some as an executive director and
many as an independent director, make the discussion more interesting and less a
B-schoolish.
In the case of a business failure or a hint of a scam or
unethical practices of a company the public opinion is almost always unmindful
of explanations and excuses provided by the tainted leadership ie promoters.
But the media and public make an equally searing criticism of the role of
independent directors on the board, who often have impeccable credentials.
“What were they doing all this time other than collecting hefty sitting fees
and enjoying hospitality and other perks!” is a common refrain post facto.
Thus the question arises about the role of independent
directors in the board, their fiduciary responsibility to keep in mind the
overall sustained and sustainable growth of the company and the interests of
minority and retail investors, whose interests they are supposed to protect at
the same time not appearing to be obstructionist and perennially conservative
and status-quoist on important matters in the board and so on. Easier said than
done.
So the book deals at length with various tricky scenarios in
the board and how independent directors should successfully navigate through
them, how they should be aware of early warning signals of trouble, how they
should at the same time contribute positively to the board proceedings to push
for timely course correction, use their specialist knowledge for which they
have been chosen to be on the board in the first place and so on.
The book provides many tips called mantras to provide an Indian touch to the discussion for all parts
of the board, the leadership, the independent directors and CEO on how to carry
out their fiduciary responsibilities and balance conflicting pulls and pushes.
The astute observations made by authors on behavior in board
room have their reflection in fact in any group, organization, family
scenarios. Thus the reader who may have nothing to do with board rooms also
comes up with many a ‘aha’ moment.
Shivanand Kanavi
(Former VP TCS,
Physicist, Business Journalist and Author; skanavi@gmail.com )
