Existence of conflict within a company board is not necessarily dysfunctional. Rather, it indicates a vibrant board that has independence and diversity of opinions. Conflicts, or more appropriately disagreements, are to be resolved, not avoided. Absence of disagreements is indicative of a non-participatory board, and denotes weak governance and oversight mechanisms.
Likely sources of conflict
Composition of board and expertise of directors: Boards of long-standing companies reflect historical necessities, and are sometimes ill-equipped for current challenges. For example, two board responsibilities in evidence in recent times—oversight of management on the issues earlier left to CEO, and challenging and shaping company strategy for capabilities—demand skills historically not expected of directors, leading to discussions that are not substantive.
Responsibility of directors in Companies Act, 2013: The granular definition of expectations from directors, committees and boards has led to some directors being wary of the kind of decisions they should take. Though it has eased lately, concerns remain, occasionally leading to unresolved issues. Accuracy and completeness of information available to directors: Its absence hinders directors from suitably preparing for deliberations and decisions.
Directors’ understanding of company’s business: They are expected to take decisions that have deep impact—involving large investments, affecting shareholders and touching a large section of employees. For this, they need thorough understanding of company’s business and its industry.
Quality of interaction between management and directors: Directors’ belief in management competence builds trust, failing which they validate every management proposal independently, leading to conflict.
Statutory governance norms: The requirement of directors subjecting themselves to regular evaluation, certifying their independence, etc, closes them to debates on new subjects. This ‘safety first’ approach could impede good but ‘high risk’ decisions.
How to address conflicts?
The chairperson is responsible for managing differences. The steps he could take include controlling board’s agenda to ensure that critical issues are debated, and using off-board consultations to ensure that directors are well-informed so that deliberations are of high quality and lead to conclusion;
Directors’ knowledge, maturity and acceptance should be factored in while forming board committees;
Timely and accurate information makes board deliberations meaningful;
The right board dynamics built around complementary abilities and personal chemistry develop effective working groups to build consensus around key issues;
Board should enlist outside experts on issues where they do not have the necessary knowledge and expertise;
Directors must remember that a board’s mandate is to take decisions and that the right board includes different expertise. It means that after sharing their opinions and advice, they should also be willing to listen and accommodate others’ views.
Disagreements or conflicts within a board are a sign of directors’ comfort in voicing opinions. What boards need to do is review and improve their decision-making process. Such processes are improving lately, but a lot is needed to cover more ground.
The author, Sudhanshu K Tripathi is group president, HR, Hinduja Group, and sits on various Hinduja company boards. Views are personal