The Centre for Creative Leadership (CCL) has conducted a research study on Board Leadership for the Asian boards and offers an insight to the board members to improve their performance and reminds them that they need to play a more strategic role in the next decade by fostering a collective sense of teamwork and shared mission for the board as a whole. As the study has been concentrated on Asian Boards, wherever possible, reference to India has been given at appropriate places.

 

The key findings of the study across its six parts are as follows:

 

I. INTRODUCTION

 

In wake of rapid changes in equity, currency, inflation, interest rates, etc. the Asian boards have serious concerns about risk management which is emerging as a key governance challenge and requires a larger role to be played by the board and not by the management only. The key risks observed are market risks, operating risks, global competition, economic uncertainty and cyber security.

 

It has been observed that Asian Boards lack diversity and are less accountable as compared to their western counterparts. On Indian boards, 55% of the respondents shared that the boards conduct 5-8 meetings in a year having 5-8 directors on board.

 

The composition of Indian board has dominance of chartered accountants, lawyers, ex-CEOs, and in some cases government officials with traditional skills on business management, industry and financial expertise and seriously lack skills on technology, innovation, understanding of sustainability and international business. The dominance of men has also been found as compared to Vietnam and Malaysia, having higher percentage of women directors.

 

II. BOARD LEADERSHIP CHALLENGES IN ASIA

 

The following factors have emerged as unique in terms of challenges for the Indian corporate governance eco system :

 

1. Lack of Governance Maturity – In comparison to Principle Based Approach of Western boards, the Asian boards follows Rule Based Approach. The penal provisions are weaker for Asian boards as compared to western counterparts.


2. Highly Concentrated Ownership – Most companies in Asia as in India also are family dominated. They prefer Board members who prefers placing assent to the decisions of promoters.


3. Skewed Board Composition – Many board members are in the age group of 60-70-80s and they show lack of familiarity with newer trends and rapidly changing environment.


4. Regressive Mindset of Incumbent Directors – There is lack of linkage between vision and purpose of entity and the way governance structure is set up. The focus is on looking good in the eyes of the regulator than having honest conversations in the board meetings.


5. Board Director Capability Gap – The quality of talent is varied in Asian Boards and most of them have been found to be below par.


6. Asian Cultural Influences – New members of the Board feel hesitation while speaking in front of senior board members. Such type of hesitation is not visible in western boards.

The Survey also disclosed an interesting fact that in almost 50 percent of the organizations, relationship between management and board can be termed as “sparring partners”. A “sparring partner” board is a group of directors who have a very open and honest relationship with the management in general and CEO in particular.

 

III. BOARD LEADERSHIP SUCCESS MODEL

 

The interviewees emphasized upon the need for shift in the mindset of independent directors based on following commandments of success in effective discharge of their duties:

 

1. IDs must feel personally accountable towards their responsibilities on the board.


2. IDs should focus more by limiting their assignments within 5 boards at a time.


3. They must spend sufficient time to research, read, update on emerging areas such as application of AI & technology, sustainability, business, economy, geopolitics, trade etc.


4. It is needed to display a mindset of courage and being respectful to newer challenges by behaving mature, friendly and firm.


5. The directorship to be treated as a profession with full time responsibility.

The study has also placed forward some key behaviors of a good director.

 

1. Speaking up the mind by focusing attention on the welfare of the organization without being loyal to a particular group of shareholders.


2. Demonstrating maturity in decision making, leading dialogues, asking relevant questions, evaluating potential solutions and handling people’s issues.


3. Getting along with peers having good relationship with the management and the CEO for respect and recognition amongst stakeholders.


4. Asking questions yet not disrupting the decision making process.


5. Engaging with the company, its processes and systems while focusing on strengths and challenges for understanding the organization better.


6. Nurturing individual and strategic leadership skills.


7. Focus on developing a talent pipeline in the company


8. Challenging and mentoring the CEO


9. Adopting longtermism approach in decision making


10. Continuous engagement in capability development across new areas.

IV. FUTURE READINESS OF BOARDS IN ASIA

 

The study inferred, based on the responses, the importance of developing understanding of technology and digitalization for the advancement of the company.

 

In an inquiry to capture the reflections of the boards about the future boards and the likely issues and trends, the following key opinions have been captured by the research:

 

1. Future will see more shareholders activism, more regulations and more demanding shareholders.


2. Future boards members will be younger, more gender and ethnically diverse, and they will have shorter tenures.


3. There will be fewer directors; frequency of meetings will be more by utilizing technology and virtual platforms.


4. Boards will be more independent, spending more time on strategy, foresight and talent discussions.

Moreover, on the immediate actions required to make the boards future ready, respondents expressed the importance of the following six tactics:

 

1. Board understanding for the requirement of learning newer skills and experience.


2. To develop a learning culture in the board, both individually and collectively.


3. To develop the board of directors to be comfortable with discomforting situations through newer experiences and changes in mindset.


4. To ensure diversity of board in terms of gender, skills, nationalities etc.


5. To make the board more tech savvy by appointing more tech-savvy directors or setting up tech governance committees.


6. To ensure better board dynamics to improve coordination between board and management, among different board members, and also among key stakeholders.

V. BOARD LEADER SUCCESS – KEY PRACTICES

 

For the leader of the future boards to succeed, the following key practices have been placed forward by the directors as respondents to the study:

 

• On boarding new independent directors by sharing relevant information, encouraging them to visit the factory and office sites and have a one-on-one with Board Chairman.


• Refreshing the board continuously with future ready skills.


• Ensuring the right level of collaboration between the board and the management team.


• Ensuring that right people development remains important for board at all times.


• Creating a family governance approach involving family assembly, family constitution, family council and a family office so that the organization can move at a rapid pace.


• Setting up a technology committee with an objective to assist the board with technology related decisions.


• Ensuring the director gets global exposure and cross company learning.


• Creating a learning culture at the board level through executive briefings, board level exchange sessions, scanning analysis reports etc.


• Charting out career paths for independent board directors i.e. succession planning.

VI. ACTIONABLE ADVICE

 

The interviewee board members highlighted the following action steps as Do’s and Don’ts for the first time directors:

 

A. Do’s

• New directors must understand that board position is “serious business”.


• Directors must spend sufficient time to understand the expectation of the shareholders or the chairperson from them.


• To do adequate research, talk to other directors, read analysis report, spend time with the chairperson, get briefings from the management etc. to know the company in detail.


• To develop thorough understanding of the pros and cons of joining an organization.


• To be clear about his skill sets and how he can contribute to the organization.


• To prepare well for the role, for instance, make time to take Independent director’s courses, get familiar with the industry, regulations, governance codes etc.

B. Don’ts

• Don’t get dragged into everything. It is advisable to spend maximum time on conversations that will add significant value.


• Don’t be reckless in joining new board. However, when joined, the incumbent director must not stay quiet or try to be an expert at everything.


• Don’t ignore guidelines and regulations. The directors should understand liabilities and the implications of their actions.

The report captures a number of areas for the learning of new as well as experienced Independent Directors in terms of variables which contribute to the success of the board. It is advisable to refer to the detailed report for complete understanding as well as a comparative analysis of boards across the region.