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How Corporate boards in Asia can improve governance?

How Corporate boards in Asia can improve governance

Published on : Nov-2022

Assessing Corporate Boards in Asia & Ways to Improve Governance

Shortly after the late 1990s monetary crisis, several Asian nations began revising their governing laws and standards on accountability for management and transparency. Nevertheless, the country has experienced significant and high-profile failures in corporate governance. This was because many boards failed to introduce and implement reform. Given the fact that Asia's corporate boards lack sufficient leadership, monitoring, and supervision; analysts expect Asia will soon become the world's largest economy, contributing about 60% of global growth by 2030.

Asian corporate boards have not been well prepared to deal with cultural stresses to maintain unity and retain dominance and centralized corporate structure in most Asian organizations. One out of two board members examined in the research found that one or more of their fellow directors needed replacing as they did not justify a position in the boardroom.

The major problem is that many organizations interpreted the leadership development of a board of directors as employing high-profile people on the board. And yet they failed to improve the quality of governance. Collective board leadership requires more than mere expertise and capabilities. It requires governance sophistication, consistency of policy for key stakeholders, individual transparency, and a variety of expertise and capabilities on boards.

We at Fatpos Global have found some suggestions and methods to reform the Asian Corporate Boards. Some of them are mentioned below:

1. Evaluate the effects of the firm's external and internal governance maturities.

In a powerful nation, Board leadership needs to be rooted and stable corporate governance. Money laundering, bureaucracy, and unaccountability in the laws of the native country affect corporate governance practices. Asian boards should also nullify the influence of a country's culture based on dominance, communism, "saving face" and avoiding confrontation, as it can hinder open discussions in the boardroom. Even the most logical task of constantly analyzing, reviewing and debating the optimal ways to improve governance structures and resources can be very challenging due to the disproportionate shareholding and thus unequal distribution of power within the Asian boards of directors. Boards in Asia need to tackle governance stalls that sometimes bog them down.

2. The board should consist of members who have precise goals and are open to learning, i.e., Learning from within

The leader represents the team and reflects the united intentions and aptitude. The individual intention of board directors also dictates the quality of the leadership. How did the directors assume the burden of the board? What's the main incentive for them? What do they expect from the selection of the board? How will they buy-in to the principles, mission, and aims of the company? How deeply do independent board members represent and take responsibility for their role? These issues also dictate the degree of individual contribution to the position of the Board. Most of the board members lead more than 4 boards. Consequently, their responsibility and their approach towards a particular organization get diluted. Board chairs must check that the representatives can plan out enough allocated time for every board of directors to participate. Board members must also engage regularly in capacity growth, especially in the area of self-and strategic leadership skills.

3. More Diversity, More Accuracy

International studies suggest that there is also a direct relationship between diversity and the success of boards. Although it is evident that Asian boards are fairly diverse in terms of skills, there are significant gaps in racial, career, demographic, and gender parity. Fulfilling these gaps will surely help improve good governance.

4. Review Execution & Elucidate the Roles and Duties

Most boards did not have an assessment process in place and other boards only performed self-assessment. Lack of clear goal and rigorous assessment process also promotes performance from complacency and subpar board. Asian boards do need to do more to identify the position and priorities of board members, chairperson, and CEO, clearly defining where maximum time will be spent. Our work has found three external  activities where the presence of board members may have a direct effect on business — customer visits, collaboration on promotional projects, and participating in discussions with vendors.

In Asia, policy regulations are becoming more stringent, environmental issues are growing, and boards are increasingly increasing emphasis on technology and expertise. If they change direction, joint board leadership will remain a challenge in most Asian organizations. However, in our study, we found that boards in Asia are starting to invest additional time addressing future preparedness; board and management discussions are now on the rise, board members are more focused on learning about potential developments, and hiring directors with technology expertise is becoming more of a practice rather than an exception. We know mutual board leadership is a strategic advantage. With strong examples on how Asian Boards should boost, individual companies that responds actively will succeed.

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