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Independent directors must protect interests of the company: Adi Godrej

Boards must not just guide a company, but also ensure decisions are implemented, Godrej Group chairman says

Shruti Venkatesh
Published: Nov 18, 2016 04:35:30 PM IST
Updated: Nov 19, 2016 11:09:37 AM IST

Independent directors must protect interests of the company: Adi Godrej
Adi Godrej, chairman, Godrej Group
Image: Sachin Gokhale

“We find it very useful in our group when family professionals are put in charge of issues which are [not just] very important for group companies, but cut across group companies,” said Adi Godrej, chairman, Godrej Group, at the plenary session on corporate governance at the ongoing Gatekeepers of Governance summit in Mumbai. The session was moderated by former SEBI-chief M Damodaran, and highlighted how far corporate India is from true corporate governance.

When asked what constitutes a good board, Godrej replied that a good board should have people with the right kind of experience and a variety of experience. “At one point, majority of the boards were constituted of lawyers, which might get biased,” he said adding that geographical diversity and gender diversity are important elements of a good board and advises shareholders and investors to take note of how professional the management of a company is. “Boards must not just guide a company, but also ensure decisions are implemented,” he said. Similarly, he said, strategy suggestions may come from board, but strategy working should be done by the business team and then presented to the board for comments and review.

As for independent directors, Godrej said, “Unfortunately in India, there is a feeling that independent directors should be protecting the interest of minority shareholders. I don’t agree with that. I think what independent directors should be doing is protecting and promoting the interests of the company. That’s the concept you should propagate.”

That apart, evaluation is extremely important and useful for the directors themselves, said Godrej. Other suggestions from Godrej for ensuring true corporate governance included apt compensation for independent directors and analysing and evolving the culture of the company with time.

Damodaran summed up the session by saying that one word which is used in all discussions on corporate governance is ‘transparent’. “But if we rewind to lessons learnt in school, between transparent and opaque, there is translucent. And translucency in corporate sector is the problem according to me.”

This session was followed by a panel discussion on whether startups should comply with governance.

“For investors, it is difficult to endorse laxity in terms of compliance for startups. In companies where we were the first institutional investors, there was an enormous amount of mess that we had to clean up,” said Bala Deshpande, senior managing director, New Enterprise Associates, India, while opening the panel discussion as the moderator.

In response, Ajit Balakrishnan, chairman, CEO and founder of Rediff.com, said “Don’t saddle the entrepreneur with paperwork.” He advices entrepreneurs to behave morally.

Partially agreeing with his views, Sanjeev Bikhchandani, founder and executive vice chairman of Info Edge, India said that good governance is first inside the entrepreneurs’ head and that one should be ‘clean’ and ‘bothered about their own reputation’. However, he adds, “There is no getting away from compliance. You have to comply if you are an entrepreneur.”

The panel then went on to discuss how investors sometimes tend to pressurise entrepreneurs to spend the funds as quickly as possible and write off the amount if the entrepreneur fails to do so. But Deshpande pointed out that there is bound to be investor expectations, just as there are entrepreneur’s expectations. She also added that more clarity is needed in the policies brought out by the government. The consensus was, thus, that while compliance is not an option, the ease of doing business should be simplified further.

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