Boards have been making the headlines throughout last year – all for the wrong reasons. There have been board level failures across India’s leading banks, financial institutions, conglomerates and IT behemoths. These were not just financial missteps or frauds. Often, analysts trace them to governance failures in check and balances, independence of directors, or lack of oversight on strategy. We have ignored for far too long, boards’ inadequate attention to human capital, a vital factor that drives innovation and growth.
Granted the board is ultimately responsible for the financial outcomes and rightly preoccupied with the numbers. Yet, what it can really monitor and control are strategy, talent, and culture. Of the three, talent plays a central position that influences both culture and strategy. However, most boards do not consider that as critical enough to include in its priority agenda.
Take the simple issue of dual appointments. According to an ET intelligence report as many as 145 listed companies of the 500 top companies still have the same person as chairman and MD despite strong recommendations to separate the two positions. What we find is the real hold up is not as much a willingness to separate the roles, but the inability to find the right person. As you trek down the organisation, it gets even gloomier. The PwC 21st CEO survey 2018 suggests that 80% of CEOs are worried about the availability of digital skills in their country. 91% say they need to strengthen soft skills alongside digital skills, while 65% are concerned about the changing workforce demographics and its implications on aspirations and corporate culture. Talent, skills, leadership, culture and governance continue to be top problems that leaders face.
Ask any board director what a typical board agenda is. “Routine matters,” they say, sometimes with concern but mostly with indifference. The internal climate and governance of companies are challenged due to board’s myopia. Giving highest priority to a robust human capital agenda should be India Inc’s new year resolution. If the very well thought out recommendations of the Uday Kotak Panel on corporate governance have to be executed, we need boards to allocate significant time and mindshare to human capital in 2019.
What should be the elements of a board agenda on human capital? Our research points to four key items.
Leadership and succession: Management gurus like Ram Charan in his book – Talent Wins, and Sydney Finkelstein in the book – SUPERBOSSES: How exceptional leaders master the flow of talent, make a very strong case for giving talent and leadership succession highest priority for companies. The board (not just the remuneration and nomination committee) must ask who are the company’s top talent? What is the process and evidence behind identifying them? They must review clear succession benches for each pivotal leadership position. CEO’s succession must be a top board agenda. We should not be afraid to ask the famous question to the CEO : what if a truck hits you tomorrow?
Talent and Skills: Almost all companies are faced with a serious skills shortage. This is the result of expediently dipping into a small pool of skilled people as opposed to creating new pools of skilled people. Boards must engage with serious questions like: What is our budget for skill development? What is our skills agenda? Who is accountable to ensure that right skills are in place? Inability to supply a steady pipeline of new age skills will be the biggest ‘risk’ to corporate success in the next decade – not money, not technology.
Diversity and Inclusion: Each company must have verifiable and measurable goals around advancing the agenda of diversity: not just of women, but all other constituencies: persons with different abilities, members of the LGBTQ community, minorities, rural youth and the elderly. The board must hold itself accountable to move the needle on this matter and move beyond quotas. Diversity without genuine inclusion is hogwash. And we have had enough of it.
Corporate culture: Millennials and employees of the future digital era hate the current ‘command control’ style of most Indian companies. Much of the license and brazenness with which promoters, CEOs and top corporate executives perpetuate their corporate dictatorship is rooted in our feudal culture. This has to change. The boards must be concerned about the cultures they perpetuate, sometimes unintentionally.
2019 is not just another new year. This is the year that completes one decade and begins another - the exciting decade of 2020s – a rare historic window for India to claim its pre-eminence among world economies. The aspiration of a superpower can’t be achieved through finance, technology and marketing alone. Our most crucial strategic lever to win in the global marketplace will be human capital.
Chandrasekhar Sripada is practice professor of OB & Strategic Human Capital and executive director of Human Capital and Leadership Initiatives at the Indian School of Business. Charles Dhanraj is H.F.Gerry Lenfest professor of strategy, executive director, EDBA Program & Center for Translational Research in Business at the Fox School of Business, Temple University , USA