Liberalative Approach in Corporate Governance

In an ideal situation, pressure on and of the independent director would adjust itself with agenda subjects being discussed in a free, fair and transparent manner. Many a times, the directors take a deep passionate stand on an issue based on a theoretical perspective ignoring the real-world business aspects. The reasons do not matter in such situations and the free and fair discussion takes a back seat. The independent directors assume themselves on the opposite side of the promoters and those managing the affairs of the company. The feeling of suspect takes away the real import of the corporate governance. The independent directors assume to play a role of policemen in civil clothes. The extreme position adopted by independent directors does no good to the corporate they purport to serve. Such a stiff position adopted by the independent directors belies the confidence reposed in them by the stakeholders. Why do the independent directors behave in this manner? One explanation could lie in the codified corporate governance practice regulations. In an attempt to comply with whole gamut of regulations by large number of regulators, which more often than not contradict each other, the directors lose sight of the purpose for which they are supposedly brought on the board. The compliance issues remain at the sub-conscious level of the directors. The fear of their consent going wrong pushes them to take strong positions bereft of reasons. The conservative approach leads to loss of business opportunities.

On the other side, there are directors who may be extremely liberal in approach and support the decisions swayed by the anticipated results and situations. The practical directors, as they are often called, assume themselves in the role of a CEO. The perspective becomes flawed and the lines between governance and management narrow down. The independent directors look at any proposal through the eyes of promoters and stakeholders bear the burden of the risk. The liberal approach takes away the healthy discussion at board level and may lead to wrong decisions getting a fair treatment.

Corporate governance is not merely about approaches and styles. It is about a thought process of reason where answers are arrived at after considering both sides of the coin in a fair and transparent manner.  The governance cannot be taught in business schools, it can only be learned. The learning takes it time and cannot happen in a day or a month or a year. Mere experience is also not enough. To govern is a mix of experience, knowledge and values.  The independent directors need to balance their view in the light of protection of interest of stakeholders vis-à-vis the interest of the company. The one-sided approach will bring in unfairness and muddled solution. The fuzziness has to be done away with the approach full of clarity – clarity of thought, clarity of reason and clarity of fairness. This approach may be termed as a ‘liberalative’ approach – a combination of ‘liberal’ and ‘conservative’ approach.

Time for 2GCG – 2nd Generation Corporate Governance?

Has Corporate Governance transformed the way the corporates function? Only an empirical study would measure this up. This takes us to another question – whether corporate governance can be measured. There have been few theories floating around for measuring corporate governance, gratifying the ardent statistically oriented fans. Theories aside, the practical realities of business environment have taught the corporate directors a way to judge the efficacy of corporate governance in an organization.

Corporate Governance has been brought to the boardrooms by multitude of laws, rules, regulations, guidelines, principles et al in a codified manner. The directors individually and the board of directors collectively, often struggle to comply with these codifications. With the sword of regulator hanging over their head, the directors either become too aggressive or too defensive. Without doubt, the directors particularly independent directors have a responsibility to act as custodian of the stakeholders. If this responsibility becomes onerous, the reaction becomes unpredictable. The board room discussions have shifted gears over the years with the onset of ‘corporate governance’ environment and the focus remains on what the independent directors say on the items discussed at the meetings.

The concept of  ‘Independent Directors’ has assumed greater significance today with the onset of  ‘Corporate Governance’. In the era of dynamism, the concepts and perceptions change as frequently as the seasons change. The composition of Board of companies in which ‘public interest’ is involved is a subject matter of considerable debate and discussion. A greater emphasis is being laid on transparency in governance and management. The way the Board functions affects the entire corporate culture; the impact and effect of which is also discernable on the economy.