Overcoming Problems in Evaluating Boards - Lessons from Indian Exemplars

Backdrop:
Strengthening Corporate Governance has taken centre stage for policymakers over the past three decades to mitigate periodic governance failures. Expert committees worldwide have recommended the practice of Board Evaluations, and governments mandated the same to assure that the Board of Directors assumes ultimate responsibility for governance.

Research Questions:
Although Board Evaluations are legislated as a practice, across most significant economies, including India (mandated in 2015), very few companies have adopted the Practice in the right earnest. Research evidence has suggested that many board evaluations are a perfunctory exercise. However, the available literature does not guide the systemic, social and psychological barriers to conducting board evaluations. This research attempts to uncover (a) Why do the Directors resist Board Evaluations (BE)? And (b) How can Boards facilitate the adoption of effective Board Evaluations (eBE)?

Research findings/ Insights:
Using grounded inquiry with the Theories in Use (TIU) approach, this research establishes the facilitators and inhibitors that affect adopting an eBE Practice. I begin by establishing impediments viz. (i) Directors’ fears and apprehensions, (ii) Bloated status and self-image, (iii) ‘feedback willingness’ deficit and (iv) absence of pre-defined Goals. Then, I establish the mediating role of Chairperson Competence and the moderating role of Board Culture in deploying eBE. Finally, I discover an additional antecedent in Board Capital-e.

Practitioner/ Policymaker Implications:
The findings from this research can help the Promoters/ controlling shareholders, Chairpersons of the Board, and the Boards of Directors to identify the enabling attitudes and supportive mechanisms helpful in institutionalising eBE. I also offer insights and recommendations for policymakers.

Theoretical/ Academic Takeaway:
This research has evolved and presented the concept of eBE, which can emerge as a cornerstone to institutionalise the ‘Board Evaluations’ practice and act as a scaffolding to improve corporate governance. I evolved three other concept definitions in support of BE, viz. Chairperson Competence, Board Culture and Board Capital-e (BCe). The propositions offered in this research could lead to the development of theoretical underpinnings beyond the perspectives confined to agency theory, aid in the composition of Boards, and enable functional Boardroom dynamics.