Elena Khachvankyan: Without sincerity, a board cannot function effectively

The true meaning of independence, the proper management of conflicts of interest, and the formation of a “working board” are among the key issues in modern banking governance. Banks.am spoke with Elena Khachvankyan, a member of the Board of IDBank, about these topics.

- At the Fast-Forward 2026 conference, you used an interesting formulation, describing independence as the “air” of conflict-of-interest management. On a more practical level, what does that “air” represent in the board’s day-to-day work?

- One of the most important functions of an independent board is to identify, manage, and prevent conflicts of interest that may arise at different levels, including within the board itself.

We approach the concept of independence quite profoundly. True independence exists when a person has no ties to the company or to any individual exercising control over it, does not represent anyone’s private interests, and, in the event of disagreement, can confidently say “goodbye” and leave without hesitation. Under such conditions, if an independent board member identifies a potential conflict-of-interest risk, they are able to speak openly about it and initiate solutions, avoiding the conflict.

This is exactly what I meant by “air”.

- What are the key indicators that distinguish a genuinely independent board member from someone who merely holds the formal status of “independent”?

- The first and most important indicator is professionalism. When a person has invested time and effort into becoming an expert in their field and is committed to applying and continuously developing their knowledge and experience, their judgments are naturally based on expertise and guided by the company’s long-term interests. In addition to what I mentioned earlier, I believe this is one of the most essential components of true independence.

Another important factor is financial independence.

It is the combination of these two elements that ensures the genuine independence of a board member, enabling them to make objective decisions based on their own thinking, professional experience, and expertise.

- Beyond formal independence, what professional and personal qualities are necessary for a board member to create real value?

- Armenia has a rather unique context in this regard. The tradition of forming independent boards is still relatively young, while for many years a culture of following the leader prevailed across different spheres of life. This stems largely from a “tribal” mentality, where decisions were determined by the authority of the head of the family or group. To some extent, that cultural legacy still influences organizational management today: personal trust and relationships are often valued more highly than institutional processes or systems of checks and balances.

In many ways, Armenia is currently going through a transition – from a personality-driven management model to a more institutional and professional governance system.

At the same time, communication skills are critically important. A board member must know how to ask questions in a way that is not perceived as criticism or a personal attack. The goal should be to create an environment where questions are understood as an invitation to healthy discussion. This culture is still developing in Armenia. Very often, people react defensively to questions, assuming they are being criticized.

Another essential quality is the ability to maintain a broad, strategic, “top-down” perspective. While executives are primarily focused on day-to-day operations, the board must be able to see the larger picture from a long-term standpoint. A board member should think not only about tomorrow, but several years ahead, because the board’s core responsibility is to ensure the company’s sustainable, long-term development. For that reason, it is important to avoid pursuing short-term interests if they may ultimately undermine long-term goals.

- During the conference, you also emphasized the importance of raising “uncomfortable questions.” To what extent has this culture developed in the Armenian business environment?

- This culture is still in the process of formation in Armenia, but there is clear and visible progress. Authoritarian management models are gradually giving way to more participatory approaches, where collective discussion and decision-making are viewed as signs of healthy corporate governance.

This shift is also being driven by the fact that many companies are moving from a phase of rapid growth to a stage of more stable, future-oriented development. At that stage, businesses begin to understand more clearly that incorporating diverse viewpoints is essential not only for risk mitigation, but also for creating long-term value. As organizations become larger and more complex, the experience and intuition of a single individual are no longer sufficient for making all key decisions. What becomes necessary instead is a combination of diverse professional experience, sector-specific expertise, and independent perspectives.

- How can an effective balance be maintained between shareholder influence and board independence so that the board does not become merely a formal structure?

- An effective balance is possible when shareholders themselves are genuinely interested in the board’s work and recognize the real value it creates. It is important for shareholders to understand that unilateral decision-making is not always the most effective approach, because no individual can consistently make the right decisions in every situation.

When decisions are shaped through open discussions, through raising different viewpoints – including “uncomfortable” questions – searching for answers, and, when necessary, conducting additional research and analysis, the decision-making process becomes far more grounded and resilient. As a result, decisions not only become higher in quality, but also pass through multiple layers of verification that help identify potential mistakes or hidden risks at an early stage.

Ultimately, this balance must be built on mutual benefit. On one side, there is a board whose purpose is to support the company by ensuring its sustainable, long-term development. On the other, there is a shareholder who recognizes that value and places trust in the board’s work.

- In your opinion, what real changes have already taken place in Armenia’s corporate governance sector, and what challenges remain unresolved?

- In fact, 30 years is a relatively short period for the formation of a corporate culture. Even in countries where corporate governance traditions have developed over 150 years, the system has continued to evolve significantly over time. In particular, in developed economies, the concept of stakeholder capitalism has emerged over recent decades, according to which companies are expected to take into account not only the interests of shareholders, but also those of all stakeholders – customers, partners, communities, and the environment. This approach contributes to more sustainable growth and a higher level of trust among all parties involved.

At the same time, in our country, shareholder capitalism was still in its formative stages. Especially in the 1990s, the focus was largely on short-term profit, while the idea of building a long-term, generational business was not yet fully developed. Over time, however, companies have increasingly come to understand that a business is not merely a revenue-generating instrument, but an independent value, reputation, and responsibility that must be preserved and strengthened – and that achieving this requires proper tools, including effective corporate governance.

Another important development has been the growing recognition among companies of the importance of international partnerships for growth and access to global markets. International partners, in turn, place strong emphasis on governance quality, particularly on transparency and predictability in decision-making processes. When this process appears unpredictable or risk-prone, potential partners are often discouraged from engaging.

If Armenia aims to deepen cooperation with developed economies, it is essential to establish reliable, predictable, and legally robust governance systems that will support the development of such partnerships.

- If we try to localize these ideas within the framework of IDBank, how would you assess the current development of the board as a “working board”?

- The current board has been operating since 2024, and during this period we have been working together and gradually evolving into a fully functioning “working board.” A board cannot become effective overnight; it requires time to understand each member – who they are, what experience and value they bring, what interests guide their approach, how they engage in discussions, and what issues they tend to raise.

Through this process, a culture of constructive dialogue and effective questioning begins to take shape. I believe we have made significant progress in this direction over the past two years. In parallel, we have also reviewed and updated our internal legal frameworks to align them with best practices in corporate governance.

At the same time, this is not a one-time transformation, but a continuous and dynamic process in which the governance model evolves alongside the business model, constantly seeking a balance between flexibility, control, and long-term development.

- What specific mechanisms or practices are used at IDBank to ensure the independence and effectiveness of the board?

- At the board level, we conduct regular self-assessments – both collectively and individually – in order to identify our strengths and areas for improvement.

In terms of independence, all members of our board are considered independent according to the criteria defined by the company. This creates a model in which there is no single dominant voice representing only the direct interests of a shareholder. Instead, the board serves as a bridge between shareholders and the executive, where each member contributes their own experience and professional expertise to the discussion, and the members complement one another in the decision-making process.

A possible next step is introducing external evaluation mechanisms, since relying solely on internal self-assessment can sometimes limit objectivity – either becoming too strict or overly lenient. An external review would provide a more balanced and comprehensive perspective, both in terms of methodology and outcomes. 

- Are there any examples where the involvement of independent members has helped to better balance risks and strategy?

- I cannot provide specific examples, as these relate to the company’s internal processes. However, I can describe the broader picture: the diversity of the board does contribute to a more balanced strategy. In addition, the Risk, Audit, and Compliance Committee operating under the board ensures that key issues identified by the supervisory system are discussed in detail and, when necessary, brought to the attention of the board.

This is one of the board’s key functions: to ensure the effective operation of the internal control system. Since the executive team is primarily focused on day-to-day business operations, risk and compliance matters can sometimes be deprioritized. 

To address this, we have revised a number of internal regulations, introduced digital solutions, and continue to develop anti-money laundering tools in order to remain aligned with the evolving risk environment and regulatory requirements. 

- If we consider IDBank as a model, what advice would you give to other Armenian companies seeking to establish truly functioning boards?

- The most important principle is honesty with one’s own organization. Self-assessment – whether formal or informal – should not be treated as a procedural formality, but as a genuine tool for understanding whether the board is truly functioning or merely exists as a formal structure. 

If the goal is to move beyond formality, one must be ready for change – whether that means updating board composition, attracting new professional expertise, or investing in the development of existing members.

Another critical factor is trust between the executive team and the board. An effective board does not operate in a “punitive supervisory” mode. The best outcomes are achieved when there is open dialogue, and management is willing not only to present successes but also to openly discuss challenges and risks.

Finally, it is important not to attempt to build a “perfect” governance system all at once. The key is to start – even with small steps – and recognize that board effectiveness is developed over time through experience, trust, and the right culture.

Arpi Jilavyan

Photos by Emin Aristakesyan