corporate governance
TRANSCRIPT
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What have you taken out of the course and why were these lessons meaningful to you.
As a successor to a family business and prospective future Board Member of my family business, I have learned a lot from this course.
The first learning is that the board has an important role of protecting the company’s future. Even though we have executives and managers who have long-term vision rather than ,only, thinking about next quarter or next year, it is the board members duty to see that future managements also always have that approach.
Second, the board must be independent of management. All the policies on board composition, tenure, carefully described position descriptions of the board and its committees, the agenda’s and the matters to be brought to the board, the board’s annual review and its relation to management—should be designed to make the board independent and responsible.
Thirdly, an ideal board cannot be independent and future oriented, if it has members from management team. The board becomes less autonomous, less challenging, less willing to criticize, and less focused on planning and management succession when management executives sit on the board.
Fourth learning is that to fulfill the role of a board, either the board or the executive committee needs a chairman who is not the CEO. There are two reasons for this; one is that a combination chairman-CEO wears two hats that cannot really be worn at once. It is chairman’s responsibility to optimize the working of the board or the executive committee, to promote discussions, questions, challenges, and even criticism. On the other hand, it is the role of the CEO to formulate, present and sell the future plans and programs for the company to achieve ambitious goals. Second reason is that if the CEO is also the chairman, the board or the executive committee cannot be independent, the CEO alone controls the company meetings, the agendas, calls for the vote, and often even selects the directors.
Fifth learning is that to fulfill the role of corporate governance, the board needs to have a well-informed and independent view of the corporation, its strengths and weaknesses and its management. To get this perspective, the chairman of the executive committee should be responsible for giving the board an unbiased view of the state of the corporation and the strength of the management team. Either a non-CEO chairman of the board or a chairman of the executive committee achieves such a task.
These learning’s are important to me because as a future Board member of my family business it is
important for me to know the role and importance of a good board. Over the past few weeks, I have
been enhancing my understanding about corporate governance and role of CEO. I understood that
building an effective board is a process and requires commitment from the leaders of the board. I
think knowing theory is as essential as putting the knowledge to practice. After knowing the role and
importance of corporate boards I am in a better position to take informed decisions for my
company.
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How these lessons will influence you as future professionals.
Out of all the lessons I think Fair Process Leadership is the one that will influence me the most in future. I think fair process is of utmost value in today’s world. It is a powerful tool for companies transitioning to knowledge-based companies where value creation depends on innovation. I feel in a family business most of the decisions are taken more by emotions and less by rationalities. By incorporating FPL, I will be able to evaluate and incentivize the employees in a rational and fair process, thus encouraging the employees to achieve difficult tasks by cooperating with each other.
Also, to incorporate fair process in my day-to-day living, I will be willing to share knowledge with others. I always thought that retaining knowledge and keeping employees at arms length gives me my seniority. However, I am wrong in this approach, I have understood that in a fair process by knowledge sharing and refinement we can improve organizational performance and enhance employee satisfaction.
Secondly, a key change in my behavior and mindset after these lessons will be to overcome my temptation to micro-manage. Practically I can share endless stories about me spending endless hours discussing irrelevant subjects while neglecting major issues deserving my more careful analysis. Now I feel it is critical that I focus my attention on items of vital importance to the organization. To do this, I would try to change myself and avoid the temptation to micro-manage or meddle in lesser matters or in areas that are more appropriately handled by the professional staff.
Third key difference would be appreciating external directors. I think I underestimated the benefits of having external board members (non family members). Now, I have learned that I can get to learn a lot from the experience of non-family member directors. As long as we choose our directors right, we have at our disposal abundant knowledge on the field of business. They can help me with the things that I don’t know. By having subject experts, I can avoid disastrous investments that otherwise I might commit because of lack of knowledge.
Engaging and
Framing Exploring &
Eliminating
Deciding &
Explaining
Implementing
& Executing
Evaluating
& Learning
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What suggestions do you have for future editions of the course.
In addition to what we had discussed in class, to make this course better, I would suggest discussing
some cases from developing economies for two reasons.
First reason is that most of the companies in developing economies are family owned. The belief set and
assumptions of family members in these countries is very different from the mindset of western family
businesses. By discussing these cases, the class will benefit by gaining insights into developing
economies’ corporate governance.
Second reason is that many Indian family businesses die within two or three generations. One of the
main reasons for the failure is lack of corporate governance. Transforming independent proprietary
enterprises into large family owned corporation requires an adequate governance mechanism. By
studying cases of companies such as Tata, GMR, Wipro etc. we can gain insights into the
motivation/inspiration behind letting go off traditional ways of running a business and challenges faced
by these companies to write and implement corporate governance mechanisms and how they were able
to overcome these challenges given the limited top-level talent pool in India.
KEEP
Interesting
cases
Frameworks
Engaging the
class
Eliminate/Stop Doing
REDUCE/ DO LESS OF
Time to discuss
frameworks Speed when showing
slides
CREATE/ START DOING
Minority shareholders
Family Business
Cases from developing
economies
INCREASE/ DO MORE
Current Events
Conversation in class
Reference to codes of
corporate Governance