In the case of Tata, there is a strong case of breakdown of corporate governance, says Kavil Ramachandran.
The recent board room tussles at India’s Tata Group and Infosys make for an interesting case study for B–schools. In an e-mail interview, Kavil Ramachandran, Professor and executive director of the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business said board members should spend quality time to address issues of major stakeholders. Edited Excerpts:
Your views on the recent board-room issues at Tata and Infosys?
It is unfortunate that groups and companies respected for their values and corporate governance practices are under a cloud, perceived or real. This is particularly so when their leaders are some of the wisest corporate leaders in the country who are capable and have access to the decision makers to discuss and facilitate any corrective mechanisms, if any, quietly but firmly, using platforms other than the media, which in any case, is not a problem solving platform.
How do you see the issues in both the firms?
The issues are not exactly the same or do not appear to be so. To me the Tata case has two fundamental issues: one, of questioning or reversing the decisions of the erstwhile chairman who continues to wield power as the controller of the shareholding trusts, and two, lack of clear board processes to address the issues logically and transparently. There doesn’t seem to have been an agreed formula at the board level for addressing situations that would involve reversal of decisions or even changing decision criteria between economic and social. In the Infosys case, the so-called founder “felt” that the established values were not followed in certain decisions.
What are the similarities you see?
There are two similarities I can see. One, the “over responsibility” feeling of founders with long years of active association with the firm, and their preparedness to do anything to get their view across or push with their views as the only right thing to do. In both cases, they tended to undermine the freedom and capabilities of the people who were sitting on the board. Two, in both cases, they used “values” as the premise to argue. Given that Murthy holds an insignificant per cent of shares, the extent to which he can actually influence any decision of the board is limited. He must be feeling contended that he could tell the world that he is the custodian of the “values” of Infosys! However, at the end of the day, both TATA and Infosys are losers in several ways, which is sad.
Can these issues be seen as failure of corporate governance?
I don’t think there is any failure of corporate governance in Infosys. The board decisions and processes seem to be well established. Yes, in the case of Tata, there is a strong case of breakdown of corporate governance led by Ratan Tata managing a coup.
What are the lessons to be learned from these episodes?
Board members should have open discussion on the processes for addressing grievances of major stakeholders. New leadership appointments should include clarity on the extent of powers delegated to the chairman.
Board members should have sufficient time (or number of days) devoted to the matters of the boards on which they agree to be members. At present, that is not happening in most cases. Some of the comments of the Infosys board members seem to raise such questions. One good global example is HILTI, where non-executive board members should spend about 25 days a year for the company!
