Companies stand or fall depending on their boards: Former Sebi chief
M Damodaran says most firms appointing woman independent directors on the company boards to just tick the regulatory check box
image for illustrative purpose
Mumbai: Size is not the real indicator but the kind of people that get into the board is. M Damodaran, former chairman, Sebi, said: "Companies stand or fall depending on their boards. Size is not the real indicator but the kind of people that get into the board is."
If a promoter has courage to bring into boardroom people who can ask tough questions, no board will extract value from management and vice versa. Peaceful co-existence does not work in board rooms, he added while addressing an award distribution event in Mumbai recently.
Damodaran also expressed anguish over introduction of newer regulations for each delinquency by a company. He said: "Before new regulations are introduced, it must be analysed if better enforcement of existing regulations can address the problem. Before you write new regulations, do a cost benefit analysis and regulatory impact assessment. Most importantly all regulations must have a sunset clause, else you cannot take away redundant regulations. It should be done like what Reserve Bank of India (RBI) has been doing. RBI withdrew 104 regulatory instructions and circulars that have become redundant or were duplicated as per the Regulations Review Authority's interim recommendation (RRA). Why this cannot be followed by all other regulators?"
"What Moneylife Foundation has done for recognising good corporate governance is a great first step. However, I would suggest you to have an award also for the best and most informative annual reports for companies. At present annual reports are full of complex sentences, and in a language that is difficult to understand for a common investor. Language is used to conceal thoughts, and we should identify people who do this. Communicating in simple language is important," he said.
Damodaran, also requested organisations like Moneylife Foundation to raise voice against absenteeism in company board meeting by directors.
The former SEBI chief also raised important issue of representation of woman independent directors on the company boards. "Are companies appointing woman independent directors or independent woman directors? There are only directors on a company, not man or woman directors. Are woman being appointed on company board because of their talent or as tokenism? Most are doing it to just tick the regulatory check box. Some claim they are doing to give justice to talent of women, but why they took so much time to recognise the talent and board resolution," he asked.
Debashis Basu, founder-trustee of Moneylife Foundation and editor of Moneylife pointed out, "while we are assembled here to give awards for the best and the second-best, let me make one thing absolutely clear. Each of these business leaders is equally exceptional in what they believe in and how they have lived up to their beliefs. They are all winners in my personal view and I am sure will be winners in the coming years," he says.
