Disclosing all board discussions in print, video format improves corporate governance


Corporate governance, like democracy, is a work-in-progress. No ideal form exists even today and efforts always are to keep improving the dynamics, the systems and the interplay between different agents; the ultimate test is whether it serves stakeholder interests.

Disclosing all board discussions in print, video format improves corporate governance
It is that time of the year again when corporate annual results are being announced, dividends declared and management salaries revealed. It's also that time of the year when analysts pore over annual reports and report transgressions of “corporate governance” in listed companies. As the various seasonal “episodes” progress, the litany about the role of the board of directors, independent directors and corporate governance will be played on loop. There is indeed an idea to make high-impact improvements, but it needs a wider debate and a tighter regulatory framework.
Corporate governance refers to the accountability of the board of directors towards all the corporation’s stakeholders: shareholders, employees, suppliers, customers and society in general. It also holds the same board accountable for providing the corporation with a fair, efficient and transparent administration so that, eventually, all stakeholders benefit. The fundamental concern of corporate governance is to ensure the conditions whereby organisation's directors and managers act in the interest of the organisation and its stakeholders and to ensure the means by which managers are held accountable to capital providers for the use of assets.
Corporate governance, like democracy, is a work-in-progress. No ideal form exists even today and efforts always are to keep improving the dynamics, the systems and the interplay between different agents; the ultimate test is whether it serves stakeholder interests.
Independent Directors
As part of this ceaseless endeavour—coupled with ongoing investor activism, increasing regulatory expectations of boards to be more engaged and active in monitoring the affairs of the companies—the spotlight has been focused on the role of non-executive (NEDs)/independent directors (IDs). In spirit and philosophy, IDs are supposed to protect the rights of the minority shareholders, to ensure timely (and hopefully detailed) disclosures to the stakeholders. Let’s unwrap this a bit.
IDs can be truly “independent” when they don’t necessarily depend (for their livelihood) on the income earned by their board role or are not controlled or influenced by anyone in their thinking and decision-making process. They cannot be morally, or otherwise, beholden to either the management or the promoter group.
But the first hurdle lies in the way IDs are selected. In most companies, empirically speaking, the CEO and/or the board chairman, both of whom are usually aligned and non-antagonistic, select the ID. There is a self-selection bias at work here; even assuming that the board’s nomination and remuneration committee members “brief” the headhunting firm to provide them with a list of potential ID candidates are there guidelines on how such head-hunting firms are short-listed, or how and by whom that list of candidates is processed? Can any additional regulation sort this mess? Unlikely, since bringing in more regulations, or trying to force-fit some top-down rule, will only lead to more distortions.
Then there’s the delicate issue of how to disentangle ID remuneration and any expectations of quid pro quo. For example, are IDs diligent about CEO performance, or sincere about CEO succession issues? A lot of verbiages have been expended, without any conclusive decision, about how much is the right and adequate compensation for IDs. While there are some statutory and regulatory disclosure norms already, it would need regulatory supervision or a whistleblower to actually disclose the true extent of the “compensation” layered across multiple subsidiaries, or the firms belonging to the promoter’s family and friends. Pay-offs have always been difficult to pin down: for example, kids of a certain category of professionals or officials have unerringly secured scholarships in prestigious educational institutions abroad and got miraculously placed in large consulting firms, private equity platforms or multinational corporations.
So, that brings us back to the question: how do we know if the IDs are doing their job on the boards? The route to behavioural change probably lies in more disclosures, though there is a lot of that already on the statutes and some more of the same will only turn this into a box-ticking ritual. So, here’s what we suggest.
The Suggestion
Per regulations, all public-listed entities already make public the full transcript of their management discussions with equities analysts/investors, post quarterly results announcement.
Perhaps it is time that the Ministry of Corporate Affairs and the securities markets regulator mandates that entire board discussions be captured in a full-transcript format and be made available on-demand, along with full video recording of the board meeting, the board notes (with annexures) and board minutes.
This can be submitted to the specified authority and not necessarily put up in the public domain. Whenever there is a dispute or complaint about a particular resolution, these transcripts will show how various directors responded, who dissented or who acquiesced. The ministry and regulators will also have to build a water-tight framework that discourages interlopers and gold-diggers from misusing the system.
This would push the onus onto the Board, to conduct agenda-appropriate discussions and formally document the discussions. This, hopefully, will make all board members careful about their duties and responsibilities and, consequently, their discussions in the board meetings.
The current practice of perfunctory qualitative disclosures on the stock exchanges after a board meeting is mere headline management. It would be a relief to all stakeholders if such a regulation is passed.
Letting in a bit of sunshine into boardrooms might not be such a bad thing after all. It might add an additional halo to the haloed boards around!
—Srinath Sridharan is an independent markets commentator, startup mentor and CEO coach. Rajrishi Singhal is Policy consultant and an independent journalist. The views expressed are the authors' personal

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