Two scholars at Corporate Governance Research Initiative, Stanford Business School (2019), raised questions about the quality of Governance and highlighted two aspects that impede the standards. (1) overgeneralizing across companies and (2) using concepts without adequately defining them. The four terms which most corporates use but perhaps do not have a shared understanding of include:
- Good Governance – Good Governance has less to do with the Board’s structural features and more to do with leadership quality.
- Board Oversight – The dual mandate of the Boards to monitor and advise depends upon the expertise of the Board, the directors exercise of independent judgment, and enabling cultural norms
- Pay for Performance – The recent fracas between the advisory firms and the listed company Boards’ decisions on CEO pay in India is a pointer to this contentious issue. Defining value addition by executive management, fixed versus variable remuneration, a forward-promise versus backward-performance, and a slew of other factors make it fuzzy.
- Sustainability – Amidst perception of short-term oriented pursuits by critics, conveying a commitment to stakeholder centered long-term orientation is both a science and an art. Saying that to shareholders and others through strategy-execution alignment is not easy work; the investment horizon is only one dimension that impacts today’s ESG sensitive world.
The paper demonstrates that Good Governance, Board Oversight, Pay for Performance, and Sustainability is not easy to measure parameters but are vital. How well are the above four defined in your Board? Is it a copy-pasted, overgeneralized approach OR has a considerable thought gone into building a conscious shared understanding? In either case, the right Board Evaluation partner can help the NRC Chair/ Chairperson of the Board find their true north.
How do you evaluate your Board? A sound Board Evaluations system does justice to calibrating the skills, knowledge, judgment, and character alongside the culture and norms. Start today and shift into the next orbit of maturity