Winning Bizness Desk
The NSE saga has brought into focus some important issues that all corporates need to address with urgency. The first of these fatal flaws is to have the same two persons continuing in top management positions for years on end. The normal temptation of persons, who are in positions of authority,is to concentrate all power and all decision-making in their hands, without attempting any manner of empowerment of persons at other levels in the organisation. This clearly is a risk factor that companies should address before the problem becomes unmanageable.
Sharing info at right time is key
The second, and a related issue, is the appointment of the immediate predecessor CEO/ MD as a non-executive member of the Board. In many cases, this could lead to the circumscribing of the powers available to the newly appointed MD. The bigger problem is when both the past and present incumbents act in concert, and run the organisation like a personal fiefdom, without sharing information with the rest of the Board, and not recognising the role that Boards play in corporate entities.
Asking tough question important
The filling up of Board positions with persons belonging to the comfort zone of management, is yet another serious problem. This could lead to peaceful co-existence between the Board and the management, with no tough questions asked, and no answers provided. The disproportionate attention given to the past careers and accomplishments of persons invited to join the Board, without considering their contextual relevance, is a serious matter. Such cases result in a serious expectation gap between what the law and regulations expect from the Board, and what happens in actual practice. In entities which have Public Interest Directors (PIDs), the problem is further compounded because their silence and tacit endorsement of what the management does, could let down the Regulator and the general public, who tend to believe that the PIDs look after their interests in the Board.
Information is the fuel
Information is the fuel on which Boards function. Boards that do not demand complete, correct and timely information often end up giving management a free pass to do whatever they choose to do. One of the expectations in regulated entities is that the Board acts as the first level authority to ensure legal and regulatory compliance. The NSE case has demonstrated that even the Board either could not, or did not, ensure timely responses to communications from the Regulator. In our view, not responding to communications from regulatory organisations should be treated as a separate punishable offence. The necessary corollary is that regulatory organisations that send such communications should not be reduced to agencies that send out routine reminders, unable to expedite the receipt of the information that they require.
Public sector should learn from private Sector
Many organisations claim that they have robust impenetrable securities systems. It is necessary to ensure that no manual overrides are permitted, except in very rare cases, for which they ought to be approved at multiple levels, justifying the need for manual intervention. Public sector organisations should take a leaf out of the practice of Public Sector Banks, where a person from another bank serves on deputation as the Chief Vigilance Officer (CVO). Since his/her career progression is not dependent on the organisation where he/she serves as the CVO, it should embolden the individual concerned not to yield to management or to pull his/her punches.
Role of the Compliance Officer is critical
The whistleblower mechanism, and the role of the Chair of the Audit Committee, also needs to be carefully examined. It should not be possible for managements to exercise complete control on the mechanism, and to prevent serious complaints from reaching the Chair of the Audit Committee. The role of the Compliance Officer is critical. He/she serves as the conscience keeper of the organisation. It falls to these individuals to alert the Board, as well as the Regulator, on whether there are transgressions that are taking place with the blessings of senior/top management. Finally, getting distinguished individuals on the Board, and describing the Board as power backed, is pointless. Absent the exercise of power, these Boards would be derided overtime as packed Boards.
