Many see Independent Directors (ID) as top honchos in the corporate world, with lucrative rewards and perks for the little time they expended in board meetings. Others who are acquainted with the darker side, view the role with trepidation; a job with hidden hazards that can expose an individual to the harsh scrutiny of the media and regulators when things go wrong, often making them a social outcast.
There is a strong lure to be an ID among many professionals. We have framed five questions to assess individuals for ID’s role. Please answer these questions to ascertain if the role of ID is an ideal fit for you or anyone else who aspires for it.
- Do you have specialisation in any specific area of value to the corporate world?
Corporate finance, accounting, corporate law, marketing, and human resources are the traditional areas represented in the corporate board rooms. Increasingly, emerging areas like digital marketing, automation, risk management, product management and investor communication are sought out areas of expertise. Doctorate, post-graduate, or professional academic qualification is a basic requirement for this role.
- Do you have exposure to the specific area in which you have the expertise?
Academic degree is only a required but not the defining qualification. Specialisation combined with exposure makes the candidate more desirable. Exposure to the specific industry, and/or to international markets addressed by the company adds considerable weight to the resume.
- Do you have the connect in the ecosystem of your domain?
With the academic degree and the exposure comes the ecosystem connect. Candidates with a higher degree of networking skills and connections in the decision-making circles that comes from studying in elite institutions like Harvard, Stanford or London School of Economics or closer home in IIMs and IITs are valued. Work exposures in the top accounting or legal firms or the market leaders among corporates can to a large extent substitute the ecosystem connect for those who come from lesser known alma mater.
- Do you have the time and energy to invest in this role of Independent Director?
An ID’s role is entrusted with significant responsibilities. It requires the candidate to invest considerable time and energy in going through all the papers that are circulated, going though it diligently and forming informed views on the subject. A half-a-day board meeting can require even a full day preparation. More important when you come across matters beyond comprehension, you may need to consult other board members or the management team to get a fair idea of what is happening. Inability to invest this time and energy can prove costly as lack of diligence can provide to be very costly.
- Do you have the conviction and tact to say the unacceptable in an agreeable way?
IDs are expected to bring in fresh thinking and a new perspective to validate the direction and pace of growth of the company. As the new perspective and fresh thinking may at times conflict with the thinking of the promoters, a critical value-add of the ID is to express their views with conviction and tact, i.e. say the unacceptable in the most agreeable way.
Finally, independent directors need to realize that the compensation they receive has two elements— value add they provide and a premium for risk inherent in their role. Lower their value-add, higher will be the risk premium for which they are being compensated.