Independent thinking is desirable for an individual, but essential in a professional. As a Director or Key Managerial Personnel (KMP) of a company, this requirement to think independently is enshrined in law and at times is required to be documented. A latent requirement when the going is smooth, it shields the professional when the going gets tough.
Independent thinking can result in disagreements with the promoter /management. When it arises, what is the right thing to do? This note recommends a course of action in different circumstances. Do you concur with these views? Please share your thinking for a constructive dialogue on these issues.
- Should a KMP/Director have their differences on business risk perceptions recorded in the minutes of the Board Meeting or Sub-committee meetings?
Entrepreneurs and promoters by nature are not risk averse. A key to their success is their ability to manage risks profitably. In contrast, a professionals’ competence may lie in arriving at a considered opinion in select domains. Hence it is likely that a professionals’ perception of risks would be higher than that of the promoter/ entrepreneur. If the risk is in their area of expertise, the responsibility would be to voice that risk and ensure it is considered in the decision-making process. Once voiced and heard, their responsibility ends. It need not be recorded in the minutes of the meeting.
- Should a KMP/ Director have their differences on regulatory ‘grey’ areas recorded in the minutes?
There is a zone of uncertainty while dealing with new areas of business or new laws that do not have adequate precedence. As a specialist in the area, if the company is undertaking an activity that is pushing the envelope, where does the responsibility end? Given that it is an emerging area, and the executive team is a pioneer, getting a positive written opinion from a person of repute in that field and have it on their records will ensure that due diligence is exercised prior to approving the plan. With the written opinion in place, the concerns need not be recorded in the minutes of the meeting.
- Should a KMP/Director have their differences on inadequate disclosure recorded in the minutes?
Adequate disclosure is one of the three main pillars of good governance. ‘When in doubt, disclose’ is a golden rule that has stood the test of time. Given this ethical construct, whom does the non-disclosure benefit, is a key question to ask. If it benefits only the decision makers holding fiduciary responsibility, then the onus on the KMP/ Director is to press for its disclosure. When overruled, it is within their right to have their dissent recorded in the minutes to force a rethink, if not to capture it for future reference.
- Should a KMP/ Director have their differences on issues of conflict of interest recorded in the minutes?
Conflict of interest is one of the most visible signs of mis-governance. A key responsibility of the KMPs/Directors is to guard against misuse of assets and information by persons in position of power. A vigilant and vocal professional is an adequate safeguard against this misuse. Hence it is essential that the voice of the professional is loud and distinctly heard on issues involving conflict of interest. When a professional stands-up to it, it is rare for a company to go ahead with the deal despite the dissent. In the remote instance of a company disregarding the dissent and going ahead with the transaction, the professional should have their dissent recorded in the minutes. If the trend continues, the professional should resign from their position to uphold good governance.
- Should a KMP/ Director have their differences recorded in minutes when information flow to the board / sub-committee is being regulated or filtered?
Trust is at the core of all governance roles. An important element of creating and nourishing trust is in ensuring free and smooth flow of communication to the decision makers. Where the KMP/Director feels information flow to them is being regulated or filtered, they could voice their concerns to their fellow professionals and later to the promoter/Chairperson. If it persists a prudent option is for them to step down from their role.