In short, they explain how different kinds of behaviour displayed by directors may often not be aligned with the objective of having them on the board.
Inside The Boardroom: How Behaviour Trumps Rationality
R Gopalakrishnan, Dr Tulsi Jayakumar
Pp 224, Rs 595
Writing a book on what happens in the boardroom is always a daunting task because of the opacity that prevails in most companies. What we hear is not what really transpires as all good companies have directors who have high brand value and considered to be the epitome of knowledge and rectitude, given their larger-than-life images. R Gopalakrishnan, a very well-known name in industry with the pedigree of Levers and Tatas, and Tulsi Jayakumar, a renowned economist, have authored a book titled, Inside the Boardroom: How Behaviour Trumps Rationality. In short, they explain how different kinds of behaviour displayed by directors may often not be aligned with the objective of having them on the board.
Now, this book is quite exemplary as it provides a theoretical framework of how directors should behave, based on patterns drawn on real experiences, as one of the authors has been on a number of boards. It is often the case that CEOs control the boards. Directors are also at times either not interested or confident of expressing their views. The authors are discreet when providing descriptions of where directors falter, but steer clear of providing names lest it lead to legal issues. The examples provided where things went wrong are now well documented—Yes Bank and Satyam. Rajat Gupta is another safe example to give as there have been several articles on what he did which got him into trouble.
One of the more interesting chapters is on what they call early signs of governance failures where the reader can try and match company names. There are 15 traits put down, which are extremely pertinent that can point to a possible problem in governance. Connections with people in high places, too much leverage, high profile in media, individualising the company to a person, etc, are some of them. The reader can start looking for examples of companies or persons who would get 10 or more tick marks. In fact, when one looks at some of the corporate controversies of late, this chart will make you say ‘of course, this should have been known’.
There are several suggestions made on governance systems and how directors should behave. This may be difficult to implement because rarely would any retired or renowned successful CEO sitting on a board of any big company admit that she or he does not speak their mind. Hence, while it is largely prescriptive, it is unlikely to bring about a major change in the way in which they conduct themselves.
There are some provocative issues brought up for which the authors need to be commended. What should be the responsibility of the board when appointing the CEO? If the CEO is to be removed, can the board stay on, as they also need to take some responsibility? They also strongly disagree with the concept of a transition of a CEO to the chairperson. Now this is ‘big’ because often the CEO never wants to leave the saddle and continues as the chairperson. One may never know if the authors are referring to a CEO who transitioned to a chairman as the board wanted him and took the stance of not drawing a pay. Or another celebrity CEO who even after becoming non-executive chairman openly states that he is coaching and mentoring a person who has 40 years of experience! Here, the authors point out rightly that what holds for employees should hold for the CEO too. If every head of a function wants to continue to mentor the next line, there would be no end.
Another delicate issue that is brought to the table is the tenure of the CEO. Now, this will make the reader jump, especially when one looks at some of the iconic names of industry who never seem to relinquish power as the boards keep providing extensions. One again never can tell if the authors are referring to some of these icons. But the innuendo can be attached to several CEOs who have led for beyond six to seven years. The authors do indicate that normally multinationals in India do follow the policy of such terms which give scope to bring about change without cementing their chairs for eternity.
The dynamics in the boardroom are discussed in some detail. The ‘authority’ bias may pertain not just to owner-driven companies but also powerful CEOs of widely held ones. The ‘group think’ bias is probably the most vital feature where the leader has the way with everyone nodding. Here, dissent is not encouraged and often discussion material is never given in advance. Another bias that comes in is predilection for the ‘status quo’ where change is dodged as far as possible. Solutions are also proposed in terms of having specific terms for the directors or getting in diversity. But at times there may be a cozy acceptance of the existing structure which ensures continuity.
They also write in detail on the manifestation of power in the boardroom and cover issues of narcissism and psychopathy which are often the overbearing force in all such interactions. The dynamics at times can be confrontational where the CEO may not like to take advice and looks at the board members with suspicion. This often manifests in sudden resignations of CEOs.
This book describes well how boards and directors should function. The broader question can be whether the protagonists are willing to accept their shortcomings. Similarly, are CEOs willing to change their behaviour and become more professional? And more importantly can any structure dislodge some of the really big names who remain CEOs for as long as they choose or migrate to the chairperson or take on the role of some category of board member to ensure their presence is omnipresent even as titles change. The jury is out on this one for sure.
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