Excessive oversight: When boards do too much, governance begins to weaken

Since 1999, successive committees in India have added layers of responsibility, leaving boards expected to do everything, everywhere, all at once

A governance fault line is creeping into every boardroom: Boards are being asked to shoulder an ever-expanding portfolio of responsibilities. The phenomenon has a name, board overload. And its most consequential unintended consequence is the erosion of the line between board oversight and executive authority.

 

In a paper recently published on the Harvard Law School Forum on Corporate Governance (https://sl1nk.com/uwcrohh), Professors Asaf Eckstein, Roy Shapira, and Ariel Shillo discuss this in detail. Over the past two decades, regulators have increasingly required boards to oversee compliance across a wide range of issues.

 

The paper says: “The accumulation has been relentless. In response to the early-2000s accounting scandals, the Sarbanes-Oxley Act tasked boards with active oversight of financial reporting. After 9/11, regulators required bank directors to adopt and oversee their banks’ anti-money-laundering policies. The 2008 financial crisis brought new mandates for bank boards to monitor capital adequacy on an ongoing basis. In the wake of the mid-2010s cyberattacks, financial regulators began insisting on board involvement in data security.” Climate risk and environmental, social, and governance (ESG) disclosure requirements have since added further layers.

 

The story in India is no different. A succession of committees stretching back to 1999 has progressively layered new obligations onto the board, which, taken together, have expected the board to be and do everything, everywhere, all at once. Add to this the complexity introduced by public interest directors, many of whom see their role as watchdogs, instinctively adversarial towards management, reading challenge as their only obligation. This too compounds the problem in a distinctive way.

 

Each new regulation, considered in isolation, is justifiable. Elevating important issues to the highest level of governance signals seriousness and ensures institutional buy-in. The biggest challenge facing boards today, the paper argues, is not any individual risk but how to prioritise among competing responsibilities. Some responsibilities get too much attention, others too little. Consequently, boards feel perpetually behind, with the urge to get involved in decisions that properly belong to management becoming harder to resist. The line that separates oversight from execution, always somewhat porous, dissolves.

 

If the line between oversight and execution dissolves at the board level, it blurs first and most visibly in the relationship between the chair and the managing director. A caveat, that this applies to professionally managed, institutionally-owned companies. Where a promoter is present, very little of this applies. 

 

And we have just seen this. The recent episode at HDFC Bank, where the resignation of Chairman Atanu Chakraborty (https://surl.li/uzlaln) over what he described as “value differences” with the management unsettled markets. This episode caused significant damage to the bank’s brand, valuation, and trust painstakingly built over three decades. But the deeper story that is emerging is not about the bank, but about what happens when governance structure is unclear or breached and the roles of chair and chief executive officer  (CEO) are left to improvisation rather than design.

 

The non-executive chairman’s role is stewardship, not strategy. A chairman leads the board, ensures its independence, and creates the governance conditions under which executive decisions can be made well.

 

A chairman who only challenges becomes an obstacle. One who only defers becomes a passive endorser. The balance is what makes the role work. Critically, the chairman’s challenge function is about process and accountability, not about substituting their strategic judgement for the executive’s. A chair who blocks decisions that belong to management has exceeded their mandate, regardless of the merits of their view.

 

The CEO is the primary interface between the board and the operating institution. Their job is to execute strategy, manage the executive team, navigate the regulator and, above all, keep the board genuinely informed. That last obligation is critical. The board’s ability to govern depends entirely on the quality and transparency of the information it receives from the management.

 

An executive who treats the board as an obstacle to work around, rather than a resource to engage, creates the conditions for exactly the kind of rupture that governance structures are designed to prevent. When a CEO pursues significant strategic moves without securing genuine board alignment, they are not simply risking a disagreement. They are undermining the legitimacy of the governance process itself.

 

Firm-level responses, adding directors, increasing meeting frequency, creating new committees, can mitigate information overload but not agenda overload. The same principle applies to the chair-managing director relationship. Structural fixes help at the margins. What is required, in the end, is something harder to mandate and more durable when achieved: A shared understanding of who governs, who manages, and where the boundary between the two must be respected, even when, especially when, they disagree.

 

Board overload is, in the end, a symptom. The disease is the assumption that more oversight mandated by regulations automatically produces better governance. It does not. What produces better governance is clarity about roles, about boundaries, and about the relationship between those who govern and those who manage.

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The author is with Institutional Investors Advisory Services India.  The views are personal.

X: @AmitTandon_in