Ramesh S Arunachalam
Corporate governance is the collective responsibility of the directors. While we can have impressive norms for corporate governance, they cannot be effectively enforced through regulation alone
While the previous Moneylife article (How to make the boards of large NBFC MFIs implement corporate governance norms in practice? (Part I) discussed critical issues with regard to corporate governance in large NBFC MFIs, this article explores what MFI (microfinance institution) boards can (themselves) do to improve the practice of corporate governance in reality. Here are some initial practical suggestions based on experience:
1. Limit the number of MFI boards on which a director may sit to not more than three at any given point in time. This will hopefully afford directors the time and space to understand how the MFIs-on whose boards they serve as directors-are actually performing on the ground. During and before the crisis in India, I had personally witnessed directors-who were on multiple MFI boards (often exceeding three)-jumping planes in a literal sense and having very little time to attend to their fiduciary and other responsibilities. Many of them could not even visit the field areas, even before the customary quarterly board review. Some of them who served on sub-committees were even more harassed for time. Therefore, it appears necessary to ensure that there is a limit-in tune with physical reality-on the number of MFI boards in which a director may sit. And three appears to be a good permissible number.
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Corporate governance is the collective responsibility of the directors. While we can have impressive norms for corporate governance, they cannot be effectively enforced through regulation alone
While the previous Moneylife article (How to make the boards of large NBFC MFIs implement corporate governance norms in practice? (Part I) discussed critical issues with regard to corporate governance in large NBFC MFIs, this article explores what MFI (microfinance institution) boards can (themselves) do to improve the practice of corporate governance in reality. Here are some initial practical suggestions based on experience:
1. Limit the number of MFI boards on which a director may sit to not more than three at any given point in time. This will hopefully afford directors the time and space to understand how the MFIs-on whose boards they serve as directors-are actually performing on the ground. During and before the crisis in India, I had personally witnessed directors-who were on multiple MFI boards (often exceeding three)-jumping planes in a literal sense and having very little time to attend to their fiduciary and other responsibilities. Many of them could not even visit the field areas, even before the customary quarterly board review. Some of them who served on sub-committees were even more harassed for time. Therefore, it appears necessary to ensure that there is a limit-in tune with physical reality-on the number of MFI boards in which a director may sit. And three appears to be a good permissible number.
Click Here To Read More
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