The best corporate boards challenge and guide companies to achieve higher levels of performance year after year. But they are all too rare. Instead, as the collapse of Enron, WorldCom-and closer to home, Satyam-shows, companies with weak corporate governance hurtle to their demise. While the spectacular failures get headlines, under-performing boards are all too common-and equally dangerous, as they silently erode shareholder wealth over time. According to Bain & Company's research on sustainable value creation, in a global sample of more than 2,000 companies, very few companies consistently performed well. When rated on three criteria for high performance-more than 5.5 percent real revenue growth per annum, more than 5.5 percent real net income growth per annum and creating shareholder value in excess of the cost of company equity-over a 10-year span, only 12 percent of the firms made the cut. The rest faltered.
Strong, effective boards can help companies avoid trouble by making the right decisions at the right time. Boards that play their role well help companies go from strength to strength, over long periods of time, despite disruptive forces like competition, technology or economic turbulence. However, by that measure, many Indian boards currently fall short: most Indian companies need to raise corporate governance standards as a top priority if they are to be sustainable over the long term.
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