Book Review: Leading from the Top: Directors Who Make the Difference

From a young age itself, focus is given to grooming of an individual. We have immense resources of literature and reference material on behaviour of kids. Isn’t it rather surprising that though we have a lot of literature on grooming somebody with a finite life, we lack sufficient resource for grooming companies or corporations, which are going concerns, and have (at least, theoretically) an infinite life?

Corporate Governance: the term itself has a wide scope. From the birth of an organization to the reason behind its existence, the ownership pattern or the DNA of the company, the value systems in place—all of these have significant contributions in creating an enterprise which benefits its stakeholders and society in general. With India on a progressive growth path, many companies are in incubation stage, and we may well have future blue-chip companies among these. Companies are expanding operations worldwide, and it calls for the best of standards in management.

The book Leading from the Top: Directors Who Make the Difference by N. Balasubramanian tries to look at the topic of corporate governance in detail, by understanding the key factors and players involved.

N. Balasubramanian is a visiting professor at IIM Ahmedabad and IIM Bangalore. Armed with rich industrial experience spanning more than three decades, Professor Balasubramanian is a revered figure in training top management and board members. He has authored several books on corporate governance, stewardship, ethics and corporate social responsibility. In his foreword, Samir K. Barua, Professor and Former Director of IIM Ahmedabad, describes Professor Balasubramanian as ‘a person who deserves to be recognized as the father of corporate governance in India’. He has graced the top management positions of companies like Wipro, and he was a board member of Britannia Industries Limited.

The book explores the role of the three pillars of governance—the shareholders, the board and the executive. Hence, the book is not just about directors and their role. Shareholders are the biggest beneficiaries when a company is well managed, and the most hit, when companies fail. The book advocates the importance of absentee shareholders, and their right to have a fair representation. The author uses small summaries to further establish his points. The cases help us to understand concepts better, since the book is more about the norms. Even though they are able to convey desired points, one may crave for finer details. There are 16 such case summaries, used in different contexts.

The book brings legal perspectives and goes to the basics of company formation, types of shareholders and their rights. It gives several examples where aggrieved parties have voiced their collective opinion to protect their rights. The legal angles help us to understand how companies work, ideally.

The book also emphasizes the importance of institutional investors. This is very much relevant in India, since LIC is one of the major investors in stock markets. They also have the institutional advantages like expertise and size. How investors were duped of their hard-earned money in the cases of UTI and NSEL is well known and documented. Since the volume they handle is quite large, potential damage too is huge. When such entities fail, trust deficit created is often irreparable.

It is also disheartening and alarming to an extent that the best practices in governance followed elsewhere in the world are yet to reach India. For example, compensation committees are to have only independent directors in the US and UK. In India, we need only half the membership to be independent. The author often cites from Companies Act 2013. The steps taken to make independent directors accountable and internal audit being made mandatory are in the right direction. Still, one cannot help but compare our systems with that of highly developed markets. One can easily figure that our systems and procedures need to go a long way. Author often quotes from international rules and regulations, for example the Sarbanes–Oxley Act of 2002 from the USA.

One also doubts how come companies in India survived so long without real focus on governance? Is it because, governance was mandated by their lenders, primarily banks? Our banking system survived a major worldwide crisis post 2008, due to its prudent systems and measures. The diligence shown by the banks would have forced companies to comply with certain governance norms. Governance assumes greater importance in India, where the ownership is rather concentrated on families of promoters. Better governance norms help to bring in more participation from public. With more retail presence, companies will find it easier to raise capital.

The book provides valuable inputs on the importance of duality of roles for the Chairman and the CEO. The different board structures and approaches towards board management are discussed in detail. For example, one can identify with companies following an Agency Theory approach or Stewardship theory approach. Another key point the author emphasises on is the role of independent directors. The diversity of the director board, its significance and the way directors are chosen are all clearly mentioned and discussed. A director brings to the board experience and wisdom. Board independence helps to bring objectivity, by eliminating chances of groupthink and groupshift in decision making.

A strong audit function helps the organization to find out deviations and optimize operations. Often we find auditors complicit in cases of corporate fraud. Many organizations get ‘guidance’ from such auditors, for showcasing better results on paper. The Satyam episode is an example discussed here.

Conflict of interest can cause damage of reputation and dilution of brand value. It manifests in many ways, sharing insider information being one. The topic demands more insight, research and coverage. The case of Rajat Gupta finds mention here. The case of iGate Global Solutions discusses how the board used the services of a third party for an independent valuation for merging its subsidiaries. The case is a reassuring one, putting faith back in governance practices adopted by new generation companies. For a reader, such case summaries act as an appetiser, and one feels hungry for more information. The author has also shared his views on corporate reputation, and building the same through ethics, values and practices.

Corporate governance is still an emerging field of study in India. The book offers an all-round view of corporate governance. Yes, the title is misleading, since it covers much more than role of directors. The book discusses in detail the role of the three pillars of governance, and the duty towards each other. Narrative used is simple and lucid in all chapters, and it for sure conveys the passion the author has, towards the topic. The book should have discussed the role of regulatory bodies and their roles in increasing governance. An interesting read for sure, which will make you go for many such reads in the same area.