Shyamal Majumdar: School for directors

THE HUMAN FACTOR

One-third of the new directors are first-time members of the boards of public companies.

If you want to be an independent director, visit Mumbai in March for a unique executive education programme being offered by the Wharton School in association with Egon Zhender International and Spencer Stuart, two leading board consulting firms. The programme will prepare you for your expanding roles within corporations around the world.

Indian companies need to provide formal training for their current and future directors, whether independent individuals or company executives, says Jitendra Singh, the Steinberg Professor of Management at Wharton, and academic director of the programme called Governing the Corporation: Global Perspectives in the Indian context, to be held between March 7 and 9. This is the second consecutive year that Wharton is providing such a programme in India.

The three-day course with a price tag of $5,000 should be worth it as no major business school in the country incorporates corporate governance into their curricula and experience around the world shows that the lack of effective training in corporate directorship could open the door to misgovernance.

In India, tighter restrictions and an "ageing pool of independent directors" will provide greater opportunities for board appointments, but prior preparation for the board membership role will be a critical success factor, Wharton says.

Wharton's programmes for would-be independent directors have a "living case" format that comprises two main board meetings, a remuneration committee, audit committee, and a chairman's non-executive directors meeting. And each year, Wharton's Executive Educations works with more than 8,000 business leaders on its campus in Philadelphia, at Wharton West in San Francisco, and at sites around the world.

For Spencer Stuart, this is just one among many such training sessions that the firm does for directors around the world. The programme, Stuart executives say, is more of a role-playing format where young directors go through a mock board meeting discussing the issues that can come up to the board level. And the people who conduct these meetings invariably have a formidable track record. For example, the programme Spencer Stuart is organising in London from March 26 has people like Reuters chairman Niall FitzGerald, Associated British Ports CEO Bo Lerenius and Filtrona chairman Jeff Harris.

What do such role-playing sessions teach you? Quite a few lessons, actually. They help you evaluate the role of the board in strategy development, valuation, compliance and evolution; develop strategic frameworks to enable boards to navigate through today's complex business environment; and develop strategies for succession planning and executive compensation. Most importantly, they help you answer the fundamental question before agreeing to become an independent director in a particular company "" why is the company hiring me?

The rationale for such director education programmes is simple. According to a Spencer Stuart study on the changing profile of directors, there are fewer CEOs among newly recruited directors all over the world. For many years, active CEOs were the most highly sought after group as a source of board directors. While they are still in demand, boards are making more varied choices when adding new independent directors.

Only 29 per cent of new independent directors added to boards in the past year were active CEOs, a significant drop from five years ago when 47 per cent of new independent directors were active CEOs. The increased demand for independent directors, and the fact that active CEOs now take on fewer directorships, have combined to force boards to expand their horizons when seeking new directors.

As a result, first-time directorships are growing rapidly. For example, one-third of the new directors are first-time public company directors. Although many of these individuals serving as first-time directors are senior executives running huge divisions of public companies, they are nonetheless new to the role of independent director of a public company.

Because these new directors need to hit the ground running and be able to contribute quickly to their boards, the importance of director education and training programmes is at an all time high. Programmes like the ones offered by Wharton in March can go a long way in bridging the gap.

Spencer Stuart says the reason why a continuing education is included in all major governance best practices recommendations is because good governance is a moving target, and often will lag behind precipitating events that make the best practices necessary.

For example, the topic of how boards can be prepared for acts of terrorism is now being requested by companies in the US and UK. Programme providers are keeping up with current concerns of the board, and individual boards should make sure they are continually exposing their members to new and relevant information. Information like these should be a wake-up call for India Inc as well.