‘Start it early’ is one of the many pieces of advice Milind Sarwate, Founder of Increate Value Advisors, has for aspiring Independent Directors (IDs). In the latest edition of ‘Grow with Governance’, Sarwate shares his eventful journey as a board member with Free Press Journal’s Jescilia K and MentorMyBoard’s Neha Shah. Sarwate is now an Independent Director in four listed companies — Mahindra Finance, Metropolis Healthcare, SeQuent Scientific and Matrimony.com, and five unlisted companies — Hexaware, FSN e-Commerce (Nykaa), OmniActive Health, Eternis Fine Chemicals and WheelsEMI.
Tell us about your board journey.
I became an Independent Director in 2005. At that time, I was holding an executive role in Marico (as CFO with Marico). It was during that time I was called to be a member of the board and audit committee chairman of a listed company, Geometric Solutions.
Harsh Mariwala, Chairman of Marico, encouraged me to take up this directorship role in another company. It is because of that I could start this journey early. The learnings I garnered in my first role helped me in my initial phase as board member. I was able to plough that learning in my executive role.
Post that, I took directorship with a US-based company, International Paper Company. This company had entered the Indian market post an acquisition. In this company as well, I got to become the audit committee chairperson. This board was different in a way as it had many luminaries as board members.
In 2014, I decided to branch out and start my journey as an entrepreneur advising, and consulting. In that process, I became a director in many companies.
My 15-16 years of board journey was quite eventful.
What are the challenges for IDs?
The role of Independent Directors today has evolved and has become more challenging. The reason being the regulatory requirements in this profession has only gone up. The regulator has placed more and more demand on Independent Directors. Meanwhile, companies have higher expectations — for regulatory and business reasons.
Business challenges have mounted because of various developments in the Indian economy in the past few years — starting with demonetisation, Goods and Services Tax, other regulatory changes, and now COVID.
The role of the board has come into the limelight and the independent directors in this process are required to take up a lot of responsibilities and challenges.
Can you share some of the challenges and learning you gathered being part of varied industries?
There is a lot of commonality throughout industries in the case of a board.
Industry specific implications come up when the nature of business differs from industry to industry and the stage of the company.
For instance, I am on the board of two NBFCs — Mahindra Finance and WheelsEMI. One is the largest NFBCs in the country and another one is a small company with a book size of Rs 500 crore. They are at two extreme ends in the spectrum. However, the regulations governing them converge.
Being a board member of an IT company which is necessarily a global entity. It is important to understand how they operate in the rest of the world. In the case of Metropolis Labs, the focus here is consumers.
Matrimony.com and Metropolis went public and now Nykaa is preparing to go public as well — this is another experience. Here, it is about partnering with a company’s management and leadership in taking the company from one stage of its life to another.
Another big source of learning is interacting with other board members.
Last source of learning is the situations that arise. Every company faces different challenges from time to time. I have faced challenges in many companies: from witnessing the hostile takeover of Mindtree by L&T, to the open offer given by International Paper during its exit from India, to managing a company that was in trouble, to delisting of Hexaware etc. The part of the board journey which excites me the most is the continuous learning.
With technology changing faster than ever before, how critical is it for you to upgrade yourselves to changing trends?
It is not critical but is mandatory. It has the potential to cause disruption. Not adopting it means you are not ready to accept disruption.
How would stronger governance help the economy?
As more and more governance gets adopted in the country, it is good for the nation. Governance leads to a lot of formalisation. This attracts investments and allows companies to grow. Governance enables growth. However, there is often a misinterpretation that it is a controlled mechanism, but actually, it is a liberating mechanism.
There have been several regulatory changes. How do you see them impact IDs?
The way society treats teachers and doctors is exactly the way the government is behaving with IDs. We expect them to serve the society but we will not compensate them well. At present, risks are many but rewards are few to IDs. Unless there is a realisation that the reward to risk ratio is low, this will continue to demotivate IDs. Professionals who have other options will not become IDs.
However, not everything is gloomy. The government is aware of the situation. There are some welcome changes like IDs will not be held liable for things that are not their responsibility. There is a proposal to give IDs ESOP and protection of minimum remuneration.
What would your advice be to aspirant IDs?
It is a serious role. Be mindful of the fact that this role carries risk and responsibility. It is better to know your role before taking it up. This role is perfectly doable if you are organised and follow the process. Do not wait till retirement to become an ID. Start early. In addition, the director is a business leader. So, he has to be a business person. Avoid boards that are run by friends. Don't leverage relationships to get board membership.