Mumbai: The confrontation between Infosys’ legendary founder and its board has taken the debate on corporate governance to a new level. While all boards follow set practices of corporate governance and audits are done regularly to ensure the same are adhered to, there is a growing trend among listed as well as unlisted companies to bring in a third party to evaluate boards externally. The objective is to improve upon governance standards.
An external evaluation brings in a specialist, who has experience of working with boards. More than just facilitating, it can bring an insight into the process along with industry knowledge.
Suresh Raina, managing partner, Hunt-Partners, which conducts external evaluations for boards, said, “An external evaluation process conducted by a neutral agency allows highlighting directors’ concerns and acts as an early warning system to the board, which will allow changes to be implemented before more deep-rooted problems set in.”
Larsen & Toubro, Kotak Mahindra Bank and Essar Oil are some of the organisations that get board evaluations done through external agencies.
According to the India Board Report 2015, less than 10% of companies opt for external evaluation. Shailesh Haribhakti, founder & chief mentor, Baker Tilly DHC, said, “External evaluations are effective only when evaluators have very close connects with members from a wide variety of boards from all over the world. The rich global best practice sharing can be valuable. This richness can also emerge from a team of experienced board members who regularly participate in or externally consult in evaluation contexts. This is a growing trend of more effective evaluations, however sourced.”
But it would be premature to state this is the only solution to ensure founders are content with the manner in which boards function. Experts said boards would still require to be proactive and act upon the findings of external evaluators. “Where the external board evaluation process has been quite successful is the World Bank and its investment arm IFC. For every company, where IFC has to make an investment decision, it is subjected to an external board evaluation process to meet the minimum requirements of corporate governance,” said Raina.