Corporate Governance is much more
than only compliance. Best practices in Corporate Governance set standards that are often higher
than what is prescribed in laws and regulations. While the arithmetic of Board
composition is prescribed in law, the quality of composition is very important
for the functioning of the Board of Directors. Law prescribes independence for
independent directors, but true independence is a state of mind. As a result, a
number of Boards in India do not have truly independent directors. Another important
aspect for proper functioning of a Board is its role clarity. The Board is
accountable for its action to all stakeholders, and not only to shareholders.
Since the functioning of the Board of Directors
is critical in ensuring Corporate Governance, periodic Board
Evaluation and the performance evaluation of Directors becomes very
important. Performance Evaluation of Directors can be done in-house or through
an external agency. Performance evaluation of Directors by an external agency
has been found to be more objective. If a Director’s performance evaluation
yields an unsatisfactory conclusion, he or she should not remain on the Board.
If persuasion does not succeed, the Board should remove the Independent
Director, though, this should not lead to the removal of Independent Directors
only because they do not toe the line of management.
It is imperative for good Corporate Governance that the Founders and
the Board should put in place a process of succession planning so that at any
given time, the company has a good leadership. Also, the Founders should not
overstay on the Board. Their interests as owners can be protected by good
professional leadership as a result of succession planning. Succession Planning
is an excellent Corporate Governance Practice.
The basic precepts of good Corporate Governance are fundamental to all organisations. Every
organisation, big or small, should have clarity of roles and responsibilities,
a focus on strategic objectives and prudential risk management, appropriate
financial management, and disciplined accountability and transparency to
members, shareholders, and stakeholders. For
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