The last few months have been quite eventful at Infosys, after a lean spell when the tech major seemed caught up in inertia. Ever since N. R. Narayana Murthy returned as executive chairman, not a week goes by without news of some change or the other happening in the company. Of course, a good portion of this could simply be the effect of excessive media coverage, but there is no doubt there is a lot more action in the firm today than six months ago.

Achilles’ heel

It is almost as if Murthy is trying to make an elephant dance. Whether all this noise and activity helps perk up the firm, only time will tell, but it is clear that certain flaws have been identified for which fixes are being implemented.

The question is: When Narayana Murthy — who was technically an outsider until recently — could identify the need for change and initiate corrective actions, why couldn’t the board of directors of the company (who were insiders) do something about it much earlier?

Infosys’ board consists of marquee personalities from industry, consulting and academia. Be it in terms of number of external directors, experience or diversity on the board, governance policies and structure, Infosys is an example of corporate governance at its best. Why couldn’t a board that scores high on corporate governance take decisive action when it sensed challenges in company performance?

But this question can be asked of most companies and not just of Infosys. This is an Achilles heel for public companies that have widely dispersed shareholding. Effective boards are essentially supposed to question and challenge top management and not shy away from taking tough strategic decisions when the situation demands it.

However, in more and more cases, we notice that a large board and the lack of a single influential shareholder goes with preserving status quo . No one wants to rock the boat.

Skin in the game

This is one of the reasons why many large companies in the US go the buyout route (private equity/management buyout) when there’s need to implement a large transformation. For listed companies, such a buyout usually implies taking the firm private — which reduces board size and associated democratic governance.

Indirectly, these transactions show that in a typical public company structure, where shareholders are represented through a board of directors, they could be fundamentally ill-equipped to handle tough situations. Sometimes, there is need for unilateral decision-making, including taking the necessary risks that come along with it.

Lack of sufficient skin in the game (shareholding) could be one of the potential reasons for the ineffectiveness of boards, especially its independent directors.

The other is social status and the fear of being ostracised by other board members. This unfortunately is the soft underbelly of the modern large publicly-listed corporation where owners no longer have control; its fate is left to the outcome of board politics and who can or cannot exert influence on the same.

In comparison, maybe the traditional family-controlled enterprise may not be such a bad model after all.

Effective boards are supposed to challenge top management and not shy away from taking tough strategic decisions.