Independent Director

Armed with seven patents granted from Japan/Australia/South Korea/India, few rapid scale ups in manufacturing, turnaround of sick unit of Birla’s and the background of serial entrepreneur background, here are my thoughts about the way an Independent Director can be a great resource in meeting multiple objectives of a company. I am focusing my thoughts on a 100cr to 300cr company, typically family owned enterprises.

Now that it has become mandatory by company law to have an ID above 100cr top line or more than 50cr borrowing etc, one is to accept it from compliance perspective. Another is to leverage this requirement to the hilt by objective evaluation of the mandate.

It could be that one person from the family took the plunge and gave all that what he had to grow a company from inception to cross 100cr. Timing, geography, competency, right kind of contacts, nature of business in particular domain etc could have facilitated the efforts of that single individual. Natural to the cultural sensitivity of India, you take on immediate family member as a Director. If spouse is willing, she becomes the natural first choice. Otherwise, it is immediate relative circle. The next could be friends. If looked at last 20 years, these would have been the prime reason for choosing a Director than going all out to locate the most competent person. It was more of emotional decision than well thought through rational decision.

In the last five years, financial eco system has changed considerably with more of equity funding being considered option than struggling with debt funding especially through banks. Also with public market scaling up and the demand for responsible and transparent management becoming the need of the hour to protect larger interest, the composition of the Board of Directors of a company started getting attn as well as being put through scrutiny.

If it was equity funding through V.C’s/ PE’s then process started taking deeper significance from day one when the investment is being considered. If it was debt funding especially by the banks, then as long as the loan is being well serviced, there was very little significance attached to the composition of the Board.

Now that there is a compliance requirement, it will be a great idea for a family enterprise to reach out to competent individuals and reduce margin of error in important decisions by involving an accomplished Independent Director. Such a person can be used to lead multiple committees to drive overall efficiency across value chain of the organisation. In times to come there will be co-relation evolving with data being compared about companies’ performance where reputed Independent Director’s are engaged. It will require good maturity to co-exist with competent people THAN TO STRUGGLE ON THE BUSINESS PERFORMANCE FRONT by being merely comfortable with familiar people.