Business Standard: The fine balance of good governance

 (This op-ed appeared in Business Standard on 21st July 2026, link below: https://www.business-standard.com/opinion/columns/the-fine-balance-of-good-governance-how-boards-safeguard-value-integrity-126072001465_1.html )

The fine balance of good governance

 Good boards create value by safeguarding integrity, shaping strategy, and enabling execution

 

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I have had the opportunity to view corporate governance from three vantage points: As an executive, as an independent director, and as a regulator.

 

Executives focus on delivering business outcomes and sometimes chafe at boards coming in the way. Directors worry about being held liable for outcomes outside their control. Regulators examine board decisions, usually well after something has gone wrong.

 

In my experience, the best boards set clear governance and broad strategy guardrails, while giving management the freedom to lead within them. 

 

Accountability of board members

 

Independent directors are often concerned about their potential liabilities. On this count, Indian jurisprudence and the Securities and Exchange Board of India’s (Sebi's) enforcement approach should offer some comfort. Both reflect the principle that directors should ultimately be held accountable for their own acts and omissions, rather than merely for a company's failures. 

 

I saw this principle applied repeatedly during my time at Sebi.

 

One high-profile case involved allegations that a promoter had siphoned sizeable funds from a listed company. In the court of public opinion and breathless social media, the entire board had failed. The evidence before Sebi, however, painted a different picture. The independent directors had taken up the auditor warnings, questioned management, recorded their concerns, and directed that the questionable transactions be stopped. Management had chosen to ignore these directions.

 

Sebi, therefore, proceeded against the company, its executives, and the promoter, but not against the other directors. 

 

More generally, Sebi's enforcement process reinforces this discipline. Sebi’s speaking orders set out the evidence, record the submissions of those facing enforcement action, and explain the reasoning behind the conclusions. The availability of review before the Securities Appellate Tribunal provides an additional safeguard and further encourages the application of mind at Sebi. While there is always room for improvement, these steps help ensure that final accountability is based on evidence rather than hindsight.

 

One practical lesson follows. Directors sometimes claim that they had privately raised concerns with other stakeholders, even though those concerns found no reflection in the board’s deliberations or minutes. Usually, this is to avoid uncomfortable discussions or to “protect the company”. That is a mistake. Governance must happen in the boardroom. As former Sebi chairman M Damodaran once observed, directors must learn to disagree without being disagreeable. Recording concerns politely but firmly ultimately serves the interests of both the director and the company. Years later, memories may fade, but the minutes will endure.

 

Governance begins with management

 

The board's first responsibility is to ensure that commercial success never comes at the expense of integrity. Management, not independent directors, should lead the way here.

 

In one instance, board approval was sought for a commercially attractive proposal. The note explained why management wished to offer a customer more favorable commercial terms than usual. What it did not disclose was that even the existing practice was in breach of regulations. The enhanced proposal, therefore, would have compounded an existing breach.

 

The issue surfaced when a director with domain expertise raised questions. Management then returned with a revised proposal. It now acknowledged the regulatory issue but argued that competitors followed similar practices, regulators had inspected the industry without objection, government departments were aware of the practice, and the business opportunity was simply too valuable to lose.

 

None of these arguments altered the central issue. Boards have no authority to authorise regulatory breaches, however compelling the commercial considerations may be. Crucially, the tone at the top is set less by mission statements than by the decisions boards make when commercial incentives collide with integrity.

 

This offers some broader lessons. First, good governance begins with frontline management being balanced and candid with the board.

 

Second, no individual director can understand every aspect of a company’s business. The board, however, should collectively possess the expertise needed to evaluate proposals across all relevant areas. Building such a board is itself one of the board's most important responsibilities.

 

Governance, not management 

Having set governance guardrails, the board must give management the freedom to lead within them. 

 

Former executives, administrators, and professionals qualify as independent directors because of their experience and expertise. Ironically, those very strengths can sometimes become a weakness. Those accustomed to taking executive decisions at times find it difficult to confine themselves to advising on them. Oversight can then quickly slip into interference.

 

Independent directors must resist this temptation. When a director falls into this trap, others should step in gently to call it out.

 

The best independent directors are often invisible to the public eye. If they complete their tenure without becoming part of the company's operational narrative, they have probably done their job well. 

 

This is also related to the board's single most consequential responsibility: Appointing the right leadership team. Once leaders have been chosen, and the broad strategy has been agreed upon, the board should trust management to operate freely within those guardrails.

 

A few other practical reflections

 

High-quality governance, alongside the maturity to let management do its job, requires significant expertise and judgement. It requires directors to maintain an understanding of the company’s context beyond what is presented in board papers. 

 

In my view, therefore, good independent directors deserve higher, not lower, compensation. That remuneration, however, should be structured so that directors are, and are seen to be, long-term stewards of the institution rather than participants focused on its short-term financial performance. There are ways to achieve this. Equally, their association with the company should remain limited so that directors are not perceived to compromise their independence to secure reappointments.

 

Finally, a few simple disciplines go a long way. Directors should only join boards whose values they are comfortable defending. They should encourage constructive debates and ensure that important discussions are accurately captured. Before every significant decision, they should ask a simple question: If this were to appear on the front page of a newspaper, could they explain it honestly, confidently and without qualification? The answer captures what balanced governance is ultimately about.

 

The writer is a former wholetime member of Sebi. The views are personal