Some of the scams and corporate failures in India, as well as abroad, have highlighted the need for building good Corporate Governance culture in the corporate sector. When such scams happen, stakeholders suffer immensely.
Board of Directors are at the apex of a company. The Board should adopt good Corporate Governance practices for the long-term sustainability of the Company. It should ensure that there is transparency and accountability within the company. The Board should trust management with executive action, and in turn hold the management accountable. It should also establish proper checks and balances, and strengthen the internal control processes. Investors have increasingly started focussing on well governed companies, and are looking beyond financial numbers when they invest in any company.
While the Directors try to establish good practices, getting an external view on the processes and practices of the company from time to time helps, since this external view is unbiased and objective. The focus of such an exercise should be on improvement, and not merely on fault finding. In order to evaluate, implement, improve and monitor governance practices in a company, the Board sometimes hires Corporate Governance consultants. Such consultants are expected to be highly experienced persons, who are equipped to conduct governance reviews based on the requirements of the company. They often provide an external perspective to the practices being followed by the company, by assessing and evaluating the focus areas such as identifying gaps in Board skillsets, training of Directors, getting the composition of the Board right, succession planning, Board evaluation etc. They give a genuine and independent feedback to the Board on areas which need attention, and the possible interventions that could help.
Since a lot depends on the consultant, when hiring Corporate Governance consultants, companies should consider some basic parameters such as
- Purpose for which the consultant is required.
- Scope of the assignment. This has to be carefully crafted.
- Profile of the consultancy firm, including its reputation and track record.
- Whether the consultants have practical experience, such as boardroom experience, as against theoretical knowledge. One solution fits all approach cannot be followed in interventions relating to Corporate Governance.
- Assignments handled by the consultant. This is more important than the list of clients handled by the firm, since the firm’s experience may not come in handy in such assignments.
- Any real or perceived conflict of interest while appointing the consultant or the firm.
- Whether the solutions that are proposed to be offered would be theoretical or would they be practical and pragmatic.
- Confidentiality of information (this should be addressed through an appropriate Non-Disclosure Agreement).
- Time commitment of the consultant.
- Ability of the consultant to handhold the company in implementing the suggestions, should there be a need.
The focus of such an exercise should be on improvement, and not merely on fault finding. Such assignments cannot focus on compliance or tick-the-box approach. These have to be value adding propositions.