4th January 2019 BUSINESS STANDARD
R. Gopalakrishnan*
*The writer is an author, Corporate Advisor and Distinguished Professor of IIT Kharagpur. His new book, “CRASH: lessons from the rise and exit of CEOs” has been published by Penguin India in January, 2019.
Email: rgopal@themindworks.me
“We continue to be committed to industry best practices with respect to corporate governance. Our Board of Directors consists of ten members. With the exception of our CEO, all of our directors are independent…. The Audit Committee includes a financial expert as defined in the SEC’s rules. The board holds regularly scheduled executive sessions in which non-management directors meet independently of management……We have an orientation program for new directors. Our corporate governance guidelines also contemplate continuing director education arranged by the company….We have a global head of risk management and a global risk management division which is independent……Based on our assessment, we believe that the company’s internal controls are effective over financial reporting. These controls have also been considered effective by the independent auditors. We also sponsor several share-based employee incentive plans.”…..
Extract from Lehman Brothers Directors’ report, 2007, just before the company collapsed
2018 threw up too many serious episodes concerning corporate governance. Blood brothers fought each other bitterly; one CEO’s cavalier treatment of his co-brother’s family appeared downright mean. A relative brought down an otherwise successful CEO. Are transgressions and governance failures increasing? No, more likely that regulation and public commentary are becoming increasingly effective, and, if so, that is good news. Many lay folks cannot fathom the arcane language of the corporate governance brouhaha. I found that a mythological story connects very well.
The Kauravas and Pandavas are related but from different branches of the same family. Together they serve as directors of the family-managed KP Corporation, which serves the praja. They are operating or non-executive directors. Both factions keep a watchful eye because they don’t trust each other.
The non-executive Chairman is the patriarch, Dhritharashtra, who, unfortunately has no sight. He relies on Sanjaya, the Company Secretary, to tell him what is going on. Sanjaya is hesitant to narrate all that he sees. Dhritharashtra is well-intentioned, but is overwhelmed by his son, the strong-willed Managing Director called Duryodhana. He dominates the board and the mind of the Chairman. He is quite self-obsessed and works with three executive directors, whose loyalty he constantly doubts.
The finance director is Yudhishthira, thoughtful and observant, amidst the transactional turmoil. Yudhishthira is also perceived as the person who knows what is right for the organization. The aggressive marketing director is Arjuna, a fine professional, much prized and valued for a sharp instinct and skill. Arjuna is proud and fully aware of the admiration he attracts. The operations director is Bhima, a picture of strength and reliable operational delivery with precision.
There are two non-executive family directors, of whom Shakuni, the Chairman’s wife’s brother, is prominent. He is constantly plotting behind the scenes and carries fake stories to Duryodhana. The other family non-executive director is Karna, who is a permanent yes-man to whatever Duryodhana utters.
The General Counsel is Krishna, very knowledgeable. He has an answer to every question, based on a deep perspicacity of how to act in a right manner. The trouble is that his answers are as confounding as the dilemma faced by the board, so they don’t quite know how to deal with his advice without relapsing into deep thought.
To comply with governance regulations, there are three independent directors, whose key qualification is to be, as far as possible, emotionally equidistant from both sides of the family. Bhishma has rich managerial experience and is wisdom incarnate. He has only one problem: Bhishma misses speaking up at the right time. Vidura, another independent director, is upright and ethical, and hugely valued as a perspicacious independent director. There is also a woman director called Kunti, an astute and worldly-wise professional, but cannot influence the deep goings-on.
As the events in the company unfold, and the battle lines between the Kauravas and the Pandavas builds up, the praja senses confusion and mayhem. The developments are duly noted by a watchful regulator called Veda Vyasa, who keeps his files up to date by continuously dictating notes to his scribe, Ganapati. Ganapati diligently records the story as it unfolds.
When the battle exploded at Kurukshetra, the praja wondered what happened to the board of directors! The lesson of Mahabharata applies to boards too—work with diligence and selflessness: hat serves the praja well.
