Nose in, fingers out: The board's mandate

Indian boards have evolved considerably, pushed by regulation, propelled by markets, and matured with experience and exposure to global governance discourse.

- Rama Bijapurkar & Vinita Bali

Indian boards have evolved considerably, pushed by regulation, propelled by markets, and matured with experience and exposure to global governance discourse. Based on our experiences and those of our peers, we want to call out an area that Indian boards need to be more aware, mindful, and cautious about—the Lakshman Rekha that separates the board from the management.

Why is this separation important? Because it is fundamentally bad governance to be on both the "buy" and the "sell" side at the same time—be the approving and overseeing entity, as well as be a part of the entity that formulates plans, proposals, and business decisions. More broadly, boards supervise the business, managements run the business, and each has accountability for their role. Blurring the boundaries makes accountability fuzzy. It is interesting that in India, chairmen are referred to as the "chairman of the company" rather than the "chairman of the board".

In reality, this is a fine and tricky line because board business requires situational judgment and not hidebound formulae. There will doubtless be times of trouble when the board needs to expand the boundaries of its usual role, where the tremendous experience, expertise and wisdom of some board members needs to be tapped. But this is all the more reason why clarity of roles and understanding the line of separation is critical.