Directorinas wanted

Meet Jean-Claude Moreau. Brussels' answer to Ramamritham.  It is well known that Homo Sapiens Ramamrithamitis is thriving beautifully in Brussels  under the umbrella of the European Commission. Monsieur Moreau has excelled himself in a number of fields and he is keeping with this tradition in trying to bring legislation that women should have a quota of 40% on the Boards of European companies.

We in India, know all about quotas and reservations. But surely Europe has better sense. Apparently not. M Moreau noted, after years of diligent research, that women only constitute 13.7% of directors in large listed companies in Europe. Given that women certainly constitute 50% of the population, and apparently 45% of the workforce, this was considered totally unacceptable.The Solution ? Legislate a quota. Wow. Only a Jean-Claude Moreau can think of that. It would be hard to think of a dumber idea.

There is no doubt at all that women in the workplace are discriminated against by culture, by religion and by male chauvinism in many parts of the world.  But only rarely so in Europe. The reason why women don't occupy a natural 50% in the Boardroom there is down to two things - a male club that does not easily let in others and the difficulty of getting good childcare which makes talented women drop out midway in their careers.

The male club is rapidly dwindling away, at least in Europe. Sheer talent cannot be suppressed anymore thanks to the brutality of the market. In major corporations today, I dare say, merit usually stands. The market ensures that there is a 100% quota for merit - man, woman or otherwise. No thank you, M Moreau for your contribution. Sure the glass ceiling exists in many places, but the speed at which it is crumbling will be far greater than what M Moreau is capable of in action.

The real problem why women are underrepresented in senior management is simply the age old problem - women sacrificing their career for children. M Moreau has two options to solve that problem. One is to allow free immigration of Filipino nannies - the good that will do to the world as a whole is immeasurable. If he doesn't have the guts to do that, the alternative is for him and his fellow bureaucrates to all become child minders - that way they will contribute more to the society than being babus and dreaming up silly ideas like quota for women on Boards.

I have another suggestion for M Moreau. First introduce a quota of 40% for women amongst the senior babus in Brussels. Then we shall see about Boards of private companies.

PS - Jean-Claude Moreau is a figment of my imagination, just as Ramamritham is, and has the same qualities. In the unlikely event that a  real JC Moreau ever reads this, no offence mate !

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Independent Directors – Not good enough

Try this one. Ask any independent director of any company, the following 5 questions.

1. What was the exact turnover and profits of your company for the last quarter ?
2. What is the annual turnover of your five largest brands/geographies/service lines – whatever ?
3. Who is the Financial Controller of your company ?
4. How many employees, to the nearest thousand, does your company have ?
5. What is your market share in your most important market and what is the share of your most important competitor ?

I am willing to bet that most of them would fail in this test.

This post argues that independence of a director is necessary, but not sufficient, to ensure good corporate governance. A more important criteria is left out, or mistakenly applied – effectiveness.

What sort of people become independent directors these days. Four broad categories of people – chairmen or senior executives of other companies, retired business leaders, academicians and former politicians or bureaucrats. All four, in my opinion are not automatically suited to perform the role of an independent director.

What is the role of an independent director anyway ? My submission is that they are NOT there to contribute to, or drive, the strategy of the company (that’s the job of the full time management of the company). They are there to ensure good corporate governance and to ensure that the rights of all the stakeholders are protected. Period.

The first group – chairmen or senior executives of other companies have no time. Running a company is more than a full time job. They cannot do justice to the intensity of what is required from an independent director. They come for board meetings, certainly contribute to strategy with their vast knowledge and experience, but cannot give the attention and time required for corporate governance.

For retired business leaders, the position is a perquisite rather than a job. Isn’t this what business leaders normally do after retirement ; to be able to say that they serve on the boards of 10 companies. They can devote the time, but usually don’t. They also don’t want confrontation. They would rather have peace and quiet, attend board meetings, make a point or two and go away.

Academicians suffer from a similar problem as serving business leaders. Lack of time. Add to that , all too frequently, incompetence in applying theory to practice. To many, corporate directorships are a big ego trip and a way of ensuring consultancy assignments. They also have not had practical exposure to the running of a business to smell and detect lacunae in governance.

I won’t even comment on the suitability of retired politicians or bureaucrats to do the job.

I’m pretty sure that most independent directors skim through the board papers on their flight to the board meeting. Few have applied their mind to the issues at hand, unless a crisis hits the company. They sit in Board meetings and react to what is presented. No wonder they are ineffective.

What, I believe is needed, are professional independent directors. That should be all they do for a living. Perhaps even organizations in the business of independent directorships. Perhaps even a professional body, a la, CPAs. They would need to spend at least one day in a week with the company. They should travel to company operations. They should build direct lines of communication with key people in the organization. They should have sufficient accounting training to detect frauds or impropriety. They should be able to ensure adequate whistle blowing mechanisms. They should devote their attention fully to governance – not business strategy. They should be paid virtually executive salaries. And, of course, they should be independent. Perhaps then, they will be truly effective .

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