The federal structure of the Indian democratic system has two houses (lower & upper) of elected and / or nominated representatives of the people. These houses are the House of the People (Lok Sabha) and the Council of States (Rajya Sabha).
The main business of both the Houses is to legislate. Besides passing laws, Parliament can, by the permissible means, exercise control over the running of the country and safeguard people's liberties. Though there are differences between the functions of the Lok Sabha and the Rajya Sabha, they together are accountable for the effective governance of the country and this two-level structure of parliament certainly provides intellectual, political & diplomatic depth essential for the 'management' the country.
Why cannot this two-level structure be made also applicable to the Indian corporate houses, which are now becoming fiercely competitive and multinational (in the genuine sense of the word)? In India, the Companies Act provides for constituting the Board of Directors, which is responsible for exercising strategic oversight over business operations, while directly measuring and rewarding management's performance.
Simultaneously the Board also is accountable for ensuring compliance with the legal framework, integrity of financial accounting & reporting systems and credibility in the eyes of the stakeholders through proper & timely disclosures. Further, the statute requires the Board of Directors to form various committees, including audit and remuneration committees with clear mandates.
However, unlike the Constitution of India, the Companies Act does not have provision for what I call a Management Board (hereinafter referred as MaBo), a second tier of the Board of Directors. The increasing complexity of business administration & management and restrictions on the number of Directors on the Board, definitely call for a debate on having a MaBo, a quasi-junior of the Board of Directors.
I believe that the organizations demonstrating the 'Corporate Governance' in letter and spirit, now need to earnestly consider constituting a MaBo, which will allow the Board of Directors to become more strategic, as the immediate and near-future appear extremely 'regulated', 'competitive' & 'complex' to an extent. The Board of Directors will be called upon to perform more 'brainy' work and therefore, they would have to consider an alternative supportive mechanism for effective discharge of strategic oversight over business operations.
What could be the key functions of such a MaBo?
- Hold a full day meeting at least once in a quarter (typically a month prior to the proposed Board Meeting)
- Provide semi-strategic inputs to the Board of Directors on operational, financial, marketing, HR related matters, etc.
- Undertake mini-review of the implementation (as applicable) of the minutes of the Board of Directors' last Meeting and prepare draft agenda inputs (semi-strategic matter & key functional matters) for the Board of Directors' forthcoming meeting.
- Take stock of the business progress and new developments in the quarter and prepare review notes for the Chairman, Vice-chairman and Whole-time directors.
- Be accountable to the Board of Directors on the critical HR or Business Policies like compliance on matters of sexual harassment, CSR, etc.
- Form cross-functional task-forces to tackle ongoing or anticipated business issues of greater consequences.
Who could be the members?
Employees who have,
- Spent more than seven years (continuous) with the organization & last three years in the strategic capacity of either Business Head or Plant Head or Unit Head or Division Head or Corporate Function Head, for domestic and / or international operations.
- A consistent & sound performance track record.
- Demonstrated consistent allegiance to the Company's values and vision and who are considered role models.
- Been with the Company through thick and thin.
- An age below fifty years.
What could be the advantages of the MaBo?
- Save the precious time of the Board of Directors.
- Provide insights to the members about the functioning of the Board of Directors.
- Throw up potential prospects for Board positions or other critical assignments. In a way, the membership of the Management Board would show the strong practice of succession planning.
- Beef up the practice of corporate governance.
- Give a greater collective say to the performing members of the senior management in running of the company.
What could be the composition?
- The size can be at least the same as that of the Board of Directors.
- One of the whole-time Directors can be the chairperson.
- Ideally, all the key functions of the company can have representation on the MaBo.
- The Head of Finance and Head of Marketing or Head of Operations, can be the secretary & convener respectively.
- On a case-to-case basis, the MaBo can invite external subject experts with the chairperson's permission.
What could be the key rules for effective & efficient functioning of the MaBo?
- Attendance at the meeting can be made compulsory except for the health or unavoidable social reasons.
- Meeting at different locations of the Company on rotation basis.
- Circulating the agenda for the meeting 7 days in advance and Minutes of the Meeting within 7 days of the meeting.
- Disqualifying a member if s/he fails to attend two consecutive meetings. However, a member, at his / her own will, can resign from the MaBo.
- All other members of the senior management to give full support.
- No payment to be made to the members of the MaBo.
- Accountability of the members to continue for their respective functions / units / divisions / businesses / plants.
Many Indian companies in IT, FMCG & Telecom sectors & even in traditional sectors like manufacturing do have forums like the Strategic Management Council, Key Executive Team, Senior Management Council, Leadership Council, etc. Such councils / teams carry out some of the tasks of the suggested Management Board. I guess the time is ripe to make such arrangements more formal, structured & accountable in view of the likely advantages and the indicated challenges of business management going forward in India.
If the spirit of democracy lies in, "for the people, by the people, of the people", then the suggested practice of having a formal Management Board, a second tier to the Board of Directors, surely deserves a debate.
In a nutshell, the business management structures & processes have to be subservient to the business needs and people's proven capabilities. And with the growth in the country's economy, the business management structures will become more participative, broad-based, responsive and 'inward' looking.
"Nothing in the world is as powerful as an idea whose time has come," said Victor Hugo, the famed French poet. The Management Board is that idea.