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Board Meetings in the Virtual Economy: Shifting Paradigm
The spontaneity, the banter and the informal lunch hour tête-à-têtes of the board room. Will they wither away in the formality of Covid-appropriat recorded proceedings of virtual meetings?
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The Covid-19 pandemic has impacted us in myriad hitherto unimaginable ways, almost metamorphosising the way business is done. Business leaders have had to be versatile and have rapidly adopted new modes of communication. Board meetings are a statutory requirement and have to be held so board members may be able to carry on tasks assigned to them. Moreover the boards of companies are vested with powers that cannot entirely be delegated.
The Union Ministry of Corporate Affairs responded promptly to the pandemic generated scenario to allow virtual conduct for both board & shareholders’ annual general meetings (AGMs). The amendment to the Companies Act of 2013 does allow board members to attend meetings through video conferences and board members especially availed themselves of the opportunity when it was not possible to travel.
Top managements of well governed companies begin preparations for board meetings at least a fortnight prior to the date on which the meeting is scheduled. Circulating the agenda, preparing presentations & coordinating with auditors culminates in successfully conducting the meetings of the board and its committees. These are tasks that every top management takes seriously. Company boards being apex bodies, have great power and responsibility and are looked upon as a guiding force. Companies have various committees which have designated roles and functions. Board members come from diverse backgrounds, bringing in different and divergent perspectives.
The Friendly Chatter
In board meeting discussions decisions and viewpoints are of the essence. Board members and senior management bond with one another professionally and respect the viewpoints of others. Executives who attend these meetings get an external viewpoint and the board meetings become a training ground for the leaders of the future. A lunch break provides board members the opportunity to interact informally with one another. New board members get to know the existing board and management during these breaks. A cohesive board which maintains its professionalism is an ideal situation. Being an apex body, the conduct of board members is closely watched. Another aspect which the audit committee and the board draw comfort from is the interaction with auditors.
The importance of a board meeting is only be realised when conversations hold forth in the boardroom. Some boardrooms have in this tradition come to epitomise the culture and history of their organisation. But Covid-19 has changed it all.
When the pandemic started we the general belief was that this phenomenon would be over in about two quarters. Most companies felt that 2021 would bring board members back to the boardroom. Directors and board members were in fact, keenly looking forward to the rejuvenation of the boardroom culture.
Upside of Going Virtual
Virtual meetings have their own advantages. Since one need not travel, travel costs of directors get reduced. Companies re-record virtual board meetings, which brings greater transparency to proceedings. The process of arranging the logistics of travel - an ongoing source of stress for the secretariat - goes completely off the table.
Directors on multiple boards had to travel extensively for board meetings. Professionals on boards would have to take time out from their busy schedules to be present. For those Board members who had to allocate substantive time for travel & attendance, virtual meetings bring the ability for optimum utilisation of time.
The physical agenda was already getting dispensed as email and had become the primary mode of communication. Most well-run companies now upload the agenda on applications that board members are able to access online. These applications, named ‘board packs’, are user friendly and secure. The board can make notes and also comment on items on the agenda. Since the timeframe of the pandemic has increased owing to the second wave, this trend is likely to continue.
Discussions Turn Covid-centric
It is also important, though, to enumerate the disadvantages of virtual meetings. It is generally felt that board members are guarded and do not express their viewpoints frankly as the proceedings are recorded. Moreover, companies tend to only present agenda required for statutory purposes. Strategies which are confidential are not discussed. Out-of-the-box thinking and deliberations are few and far between. Discussions in the recent past have centred around the impact of the pandemic on the company. Discussions are also limited in depth since board members inducted during the pandemic and are on many occasions not familiar with fellow board members and company executives. In most cases, auditors too express their limitation because of the lockdowns necessitated by Covid -19.
Conversations at virtual board meetings are now built around to catchphrases such as “Covid”, “Stay safe”, “Are you all safe?” “Take care”, “share screen”, “mute” and “unmute”. The quality of audio visuals can, moreover, be a challenge for virtual meetings. Some board members feel that the dress code which was formal, like suits and half jackets, have given way to T- shirts. Work-from-home over the past year has further impacted corporate culture and the intensity of board meetings has in general watered down.
Merely a Statutory Requirement?
Annual general meetings are also going virtual. This is an area of great concern, as small investors do not get an opportunity to express themselves. Some of them may even not be able to log on to a virtual meeting. Questions are raised through chat boxes and shareholders may not always be able to communicate their views and queries. Shareholders numbers can often be too large for meetings of substance, and so virtual meetings therefore often aim for mere compliance with corporate laws.
Electronic voting implemented since the amendment to the Companies Act, has been extremely successful. But with virtual annual general meetings still in their infancy, the mechanism needs to improve so that investors’ rights are preserved. As we look forward, it is important that companies introduce meeting protocols. Most companies would be concerned about data secrecy and protection, as sensitive information is being circulated. Many companies had a practice of introducing price-sensitive agenda as table items. Companies will have to devise secure transmission protocols to deal with confidential and price sensitive information. As we look to the future, data protection and confidentiality would be key. Another aspect that would be essential for effective working of boards is the smooth virtual induction of new members and their orientation, since a well informed and cohesive board is the essence of governance.
A bit of fatigue, as well as casualness, has set into corporate culture, as personal situations gain pre-dominance in a Covid-inflicted world. Some company directors attend meetings from various time zones and destinations which can be very stressful and could contribute to the sub-optimality of proceedings. The homes and environment of some directors may also occasionally not be congenial for board meetings. Board members have had to create meeting rooms or corners, as each board has to declare that no one else is present in the room and privy to the proceedings.
Humour, exchange of ideas, tug-of-war, banter and brainstorming add spice & substance to board meetings – all of which are missing at virtual meetings. The process of holding virtual meetings will be further strengthened with learnings from experiences. Corporates, directors on company boards, senior management, auditors and executives − all involved in the board meeting process − are making efforts and increasingly adjusting to the new normal.
The author is a practising chartered accountant and an independent director on many large public companies whose views and ideas have been instrumental in framing policy