Re-examination of Purpose by the Boards in Post -Pandemic Era
COVID has rewritten the role of Board and Senior Management. The situation has introduced an integrated approach towards corporate governance and sustainability. In addition to the fiduciary duties mentioned under the provisions of the Companies Act, 2013, the entire thought process of the Board has taken 360 degrees turn. The pandemic has made it extremely clear to the businesses that they can never operate in isolation. On one side where the society is very much dependent on the well-functioning of companies for products and services, on the other side, even the companies have realized that they also can not solely concentrate on maximization of profits rather they will have to consider the entire community at large. Therefore, Boards must now start to acknowledge the factors that have helped the company to create its value over time.
Historically, India has witnessed materialistic changes in the working styles of the Board and Senior Management due to introduction of technology, environmental changes, socio-economic changes and so on. However, this is for the first time when a change in the mindset of the leadership is visible especially in the areas of governance, ethics and culture. In the current times, the leaders have become more sensitive while approaching towards the community as they have started realizing the worth of working together and reaping the benefits together.
McKinsey in its article “The board’s role in embedding corporate purpose: Five actions directors can take today” has wonderfully described five actions that can help Boards further a Company’s purpose and environmental, social and governance journey;
Here are few areas which we now see could be included in the scope of Boards’ role to ensure good corporate governance practices in organizations:
a. Strengthen preparedness and resilience to crisis and systemic shocks – Systemic shocks may range from financial crisis to a pandemic situation like COVID and therefore the Board must now be prepared to play a crucial role in providing oversight of the company’s ability to respond and recover from such shocks with less damages. Also, in addition to this, the role of Boards will now increase up to devising a simple communication channel between them and the last mile worker to give them the comfort that Board is there with them, may what the situation is.
Having emotional involvement on one side, the Board will also have to concentrate more on the strategic side wherein they have to ensure that all the policies and procedures at the workplace are put in place and properly adhered to so that right decisions at right time could be taken considering the greater societal good.
b. Greater investment in training and sensitization of people – Till now in most of the organizations, training and sensitization were two words that only HR used to deal with. But now with the change in time, the focus of Bord on the aforesaid words is the need of the hour. Organizations must not look training and sensitization as merely check the box approach rather they should consider as an opportunity to interact with people via these platforms to foster open communication channels. It is now time when Boards must plan for the future and invest in the education and skill development of the existing as well as new workforce where everything is taking place in the virtual space.
With the investment in upskilling of the workforce, Boards also must invest good time in upskilling the capabilities of the Boards collectively to learn, to adapt to new situations which helps them to navigate the growth of the Companies. Individual Board Members should keep themselves agile, adaptable and coachable to visualize the future opportunities, possibilities which the organizations can grab upon to keep up the growth momentum in difficult times as well.
c. Integrated approach towards statutory and non-statutory disclosures – Often it has been observed that companies are making disclosures of items that are mandated by the law. Yet, in the current times, Boards must start leading by example by not only disclosing their statutory status to the country but also the non-statutory part wherein they should mention how effectively they have been able to incorporate good governance practices into their organizations to ensure sustainability. It is time when Boards should encourage Boards by highlighting best practices and explaining the importance of transparency to the stakeholders.
d. Comprehensive approach to Compensation Mechanism – During the pandemic when the revenues started collapsing, Boards started facing the problem of retention. On one side where the top management secured its own funds, on the other side the actual workforce was being laid off from companies and some those who continued to work were amongst the least paid force. This situation resulted in a never ending corporate financial crisis. In order to tackle such situations in future, Boards must start paying attention to such problems from the beginning and introduce proper policies to mitigate such risks.
e. Align strategy and capital allocation for the long term value creation – With the changed workplace environment and raised expectations from the pandemic, Boards must now start concentrating on intangible drivers of values like research, innovation, capacity building, stakeholder wellbeing, talent development, stakeholder management, organizational culture, respect for human rights, diversity and inclusiveness, respect for each gender at workplace, strengthening stakeholder relationships and more.
Effective implementation of these pointers will help the Boards to have a holistic approach towards sustainable governance practices. Write your comment below as one biggest challenge collectively faced by you as a Board or faced by you as Director on your Board.
We at MMB, invite you to a journey ahead that is nurturing your professional aspirations and expectations. MentorMyBoard is about Creating, Enabling and Empowering Directors to make sustainable and dynamic boards considering the diverse portfolio and demands of an organization. At MMB, we are offering a platform that prepares Directors towards ethical leadership, robust governance practices, borderless compliance, and insights that in turn make competitive boards potentially prevalent.
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