Balancing acts in the boardroom

Drawing lessons from global and Indian corporate histories, Inside the Boardroom provides valuable insights for corporate leaders and students alike

Inside the Boardroom: How Behaviour Trumps Rationality

Author: R Gopalakrishnan & Tulsi Jayakumar

Publisher: Rupa

Pages: 224

Price: Rs 595

The authors of this timely book have provided us with a delightful and useful work. As the name suggests the book deals with what happens in a boardroom in different types of companies; professionally-managed, family-owned, promoter-driven, large and small enterprises.

R Gopalakrishnan has 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 is interested in family businesses and teaches management studies.

Though the owners’ or promoters’ role in the business dynamics of an enterprise is discussed, the focus of the book is on the role of the CEO and independent directors.

The book briefly traces the evolution of corporate India’s boardroom, particularly in the light of the 1992 Cadbury Committee recommendations in the UK and the churn that resulted in the J J Irani Committee recommending changes in company law in India that led to the new version of the Act in 2005.

The Cadbury Committee had recommended that companies voluntarily accept: The separation of roles of chairman and CEO; a majority of independent directors on the board; non-executive directors as the majority on the remuneration committee and playing an active role in the audit committee.

Though the report was UK-focused, the Cadbury Committee’s recommendations had great influence on the evolution of corporate governance internationally. Even in India it led to the introduction of independent directors in all public companies, though not a majority, awareness of the need for greater participation of women in boardrooms and 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 those aspiring to become company secretaries, compliance officers, market analysts, or equity researchers.

The authors, however, continually stress that mandated or voluntarily accepted compliance standards and norms go only thus far and no further, just like national laws and constitutions. A more important and tricky factor in the boardroom, the authors point out, is behavioural. They posit that these issues play a very important role in boardroom dynamics.

That is what makes this slim book an interesting read and novel in approach. They illustrate their thesis with innumerable case studies of business failures that can be traced back to boardroom dynamics that stymied any timely course correction for the corporations concerned. They draw brief lessons, without falling into the pitfall of merely compiling case studies in corporate governance, from global as well as Indian corporate history.

The pages are enriched by a wide variety of stories of global corporations such as Enron, WorldCom, Unilever, Lehman Brothers, Nestle, the Rajat Gupta episode and dozens of others. 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 Mr Gopalakrishnan.

The personal experiences and anecdotes by “Gopal” (the third person short form R Gopalakrishnan uses to refer to himself in the book) draw on his membership of over 20 boards, some as an executive director and many as an independent director. They make the discussion more interesting and less like a B-school textbook.

In the case of a business failure or a hint of a scam or unethical practices, public opinion is almost always unmindful of explanations and excuses provided by the tainted leadership (i.e promoters). But media and public opinion can be equally searing in their criticism of independent directors, 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 post-facto refrain.

The independent directors’ role in the board is a tricky issue. How do they discharge their fiduciary responsibilities towards ensuring corporate profitability and protecting the interests of minority and retail investors, whom they represent? How can they balance these interests without appearing obstructionist, perennially conservative and status-quoist? Easier said than done.

The book deals at length with various complex scenarios in the board and how independent directors should successfully navigate them. It discusses how they should be aware of early warning signals of trouble, push for timely course correction, and leverage their specialist knowledge (for which they have been chosen in the first place).

The book provides many tips, called mantras, to provide an Indian touch to the discussion, for all elements of the board —the leadership, independent directors and CEO.

The authors’ astute observations on behaviour in the boardroom are, in fact, reflected in any group, organisation or even family situations. So the reader who may have nothing to do with boardrooms could also come across many an “aha” moment.

skanavi@gmail.com. The reviewer is a former vice-president at TCS, physicist, and business journalist and author