Family businesses need critical boards, not ‘yes men’, says former ICSI chief

Women now hold 20.2 per cent of all director positions on the boards of the 200 largest companies in the world – the Fortune Global 200 – and 17.6 per cent of executive officer positions on these same companies. However, when it comes to India, things look much better and more promising, at least in terms of the growth rate. During 2013- 2022, India made significant and rapid progress in increasing women representation on boards from 6 per cent in 2013 to 18 per cent in 2022. Almost 95 per cent of NIFTY500 companies have one female board member, up from 69 per cent in 2017. In some sectors, the picture looks even brighter. With a 24 per cent women representation on board, the life sciences sector has taken the lead, followed by the Media & Entertainment sector (23 per cent).

Speaking to Bizz Buzz exclusively, Dr CS Mamta Binani, Past National president, ICSI (Institute of Company Secretaries of India), says, still there is no place for complacency and India has to do lots of catching up

What, according to you, are the key issues in corporate governance in India, at this point?

I wish to say that by and large now Sebi and the companies, put together, have been able to bring together what is it that we need to disclose. The disclosures are bigger than huge. Making sense out of those disclosures is now becoming a challenge because too much writing is coming in the annual reports and on the website and sometimes those writings are entangled in words.

These words are often very flowery and so making a sense out of it, is exactly what it is trying to say, becomes a very difficult task.

Sometimes, we have seen that in companies, the executive director, that is the promoter-executive director, is also the CFO of the company. So it means that (a very vital part that is and I will not say it) is not an independent position, but when a promoter director becomes the CFO. So he is a whole-time director plus the CFO. I think this kind of a scenario really adds up to the issues because you do not have very independent hand and brain looking into things.

As we rightly understand that a sentence can be moulded in many different ways by putting a comma and a full stop. Sometimes even the facts and figures can be moulded. Therefore, in corporate governance, a lot of data points are coming. It is very important that the independent directors, who are sitting on the board, start asking the right questions and also do not encourage any item coming on the table because then the directors are not getting enough time to read the documents. So as per the Companies Act, it is important that everything comes with the notes to agenda. I think the enforcement of these things, prima facie, would lead to a lot of wisdom coming on the table.

Where does India stand in terms of women representation on company boards?

The Companies Act of 2013, made it mandatory for companies with Rs 100 crore turnover and paid-up capital of Rs 10 crore and above, to have certain number of women members on the board. We have seen that the representation of women has really gone up and subsequent to this Act, women directors have made significant inroads.

We also find promoter-women directors are also coming on the board and at times they are just for the sake of it, but many a times, we have seen that they are contributing. So this is a very healthy beginning that the number of women representation on company boards is decent. But having said that, there is a room for improvement and a lot more needs to be done. Some talks are going on with regard to introducing some quota system. I am not talking much about it, because Companies Act in itself has given some kind of a point, where woman directors are compulsively required on the boards.

Compared to companies like Norway, Denmark, Sweden, of course India has to do lot to move up towards that direction. It may take a little time to reach the ultimate goal.

How serious is the issue of gender diversity in businesses and organisations? How to handle the issue?

A look at ESG (Environmental, Social and Governance) has now become the talking point. In ESG, if you see the questionnaire that is coming from the consultants, which is quite in line with what the government of India has also started talking about. This kind of gender diversity is now becoming a talking point in all the boards and when we talk of gender diversity, we are also talking of the third gender and maybe also challenged and specially abled on the boards so that it not only adds to gender diversity but it also gives a wider diversity in terms of people who is on the board.

So when we talk of how to handle the issue, let me mention here that laws play 80 per cent role. When ESG came into play, people started talking about environment, or saving the environment, talking about governance. Similarly, when the Companies Act came into effect in 2013, making it mandatory to have women directors, we started looking for women directors. What has happened after that is for anyone to see.

What are the benefits of having women on board?

What are the benefits of having women on board? And that is a big question. One can go on elaborating on this. But however much one may explain, the benefits of having women directors on board, would still be much more.

So I am also a woman, who is on several boards like Emami Limited, Balrampur Chini, GPT Infra. I was also on the boards of Century Ply, to mention a few. I have realized from my own experience that we are too particular. We would always like to have an approach of ‘tick the box’ apart from having a wholesome discussion on the topics that comes up for discussion. So we are the ones, who believe in going to minutest of details and sometimes we have seen that the devil lies in the details.

So, I, for one, have also noticed that if a thing comes up, we do not say ‘it is done and let us go to the next item’. We actually kind of go to each and every data point and try to close the agenda and take it to a logical conclusion rather than just jumping on the next agenda.

So I put it as a caveat that I do not say that men do not do that, but yes women on board, do it more regularly and more efficiently. We also bring in a lot of diversity and also bring in that sense of empathy too. Sometimes I think that also gives a kind of a third angle to things. And I have seen that even a very big issue can be solved or sorted out, if empathy comes into play-- you lend your ears and try to understand everything and the issue gets sorted out easily.

What are the key issues related to corporate governance in business families/family-run businesses? How to address the issue?

I think this is a very good question and what I have felt is when it is a family-run business and the right questions just does not come up on the table because whenever or if somebody is just wanting to ask, others say: ‘Oh don't worry, this will be looked into and even the CFO and you know the CIS and everybody else is like kind of a little comfortable. I am not saying they get into a comfort zone, but they are a little comfortable because they feel that it is the promoter directors, who are there in the company and everything they know, they are taking all decisions.

So there is not much that you want to tell the independent directors or that is not much that you want to bring it to the board. It is more of a tick the box approach and taking a go ahead on the mandatory issues that has to come on the board. It becomes more of a paper board meeting rather than anything else. So the key issue is related to corporate governance and family business is, if you ask me, is how to address the issue. And we need to just understand that this board is for the benefit of the entire stakeholder community and having a critical board is always beneficial to you as Kabir rightly says that you will keep the person close to you who is always talking and telling you what is it that you need to improve, rather than a friend who is always talking good about you.

In what way is the issue of corporate governance different in case of MSMEs? Can MSMEs adopt various best practices of corporate governance and how would that help them grow?

So in MSMEs, the biggest issue is the MSMEs are always struggling with lack of funds and it is because of its sheer size and because of the lack of capital. Sometimes, it is seen that corporate governance always takes a back seat because they feel it is sort of mandatory on us why is it that we are looking at it because we are doing board meetings keeping a legal cell, having a company secretary. Everything has a cost, mind you. So when they are kind of literally struggling for the major issues which keeps their business going, it is sometimes seen that these governance and corporate governance takes a back seat.

So to address this issue I think these MSMEs have to be really told and made them understand that when the company grows in stature, even the investors start looking at them even the bankers give them brownie points and as we have seen that even the rating agencies do that, when they come to do rating and if we have certain such culture in our company then the rating agencies also gives you a better rating, which in all will actually gives you a lower percentage in terms of taking loan.