Having the right board in place is one of the cornerstones of steering an entity successfully through the sometimes stormy, if not muddy, waters of the corporate world. At the same time, getting board composition right is a challenge no matter the company size or ownership structure. A look at responses from a survey undertaken in 2016 by the KPMG Board Leadership Centre amongst 2 300 directors and executives suggests that board building is an even greater challenge for private companies – both investor-owned and family-owned.1 Only one third of private company directors said that they were satisfied that their boards had the right combination of skills, backgrounds, experiences and perspectives to probe management’s strategic assumptions and help the company navigate the increasingly volatile marketplace.
When asked to rank the most effective mechanisms to achieve the right mix of skills, backgrounds and experiences on the board, some 80 per cent of private company directors cited both robust board evaluations (including individual director evaluations) and formal board succession plans as their top two.
It is fairly obvious from the aforegoing that boards are not completely ignorant to some of the value- adding disciplines and processes, such as performance evaluations and succession plans, required to strengthen and enhance their ability to be effective. However, the scoreboard shows that these disciplines are getting very little, if any, airtime in the boardroom. The reality is that many directors of private companies find their way into the boardroom as representatives of material stakeholders such as shareholders, funders, suppliers, labour and others. Very little interest is taken in appropriately developing these individuals, in effectively evaluating their performance or having an adequate succession plan in place.
In principle, having stakeholder representatives in the boardroom is not in itself to be frowned upon. There are many reasons why this can be of real benefit, not only to the board, but also to the organisation. Personal experience in boardrooms over three decades has however left me fairly despondent and cynical in this particular area. The mindlessness with which directors are often introduced to and welcomed onto a board is but one of the features regularly witnessed in many boardrooms – both in the private and public sector.
In a Forbes article,2 Bryan Stolle writes:
A great board is the result of having great board members. Bad board meetings are the result of ineffective or unqualified board members. So what does make a great board member?
He then lists a number of critical attributes of a great board member such as great judgement, wisdom, understanding the relevant context, motivation and interest, good people skills, courage, and being an effective coach, mentor and sounding board. The King IV™ Report on Corporate Governance for South Africa, 2016 (King IV™) also highlights a number of important characteristics to ensure effective and ethical leadership in our organisations. These include integrity, competence, responsibility, accountability, fairness and transparency. Considering all of this it goes without saying that a healthy dose of emotional intelligence is non-negotiable for an effective and value-adding board member.
It is however not only about character and personality; it is also about bringing the right skills into the board to enable the board to be in effective control, to ask the right questions from management, to timeously identify potential risks, negative trends and the like. Ana Dutra3 argues that ‘to add such strategic value, high-performing boards must be “talent-centric.” At its most basic level, this manifests itself in a board’s composition and diversity level. An enterprise must attract directors who can provide valuable, strategic input, while building a board that can draw on the diversity of its members’ expertise and backgrounds
— across geographies, gender, race, and experience
— to create a whole that’s literally greater than the sum of its parts.’
The reality is that many directors of private companies find their way into the boardroom as representatives of material stakeholders such as shareholders, funders, suppliers, labour and others.
Is having the ‘right people’ then enough to guarantee a highly effective board? Sadly not. It is one of the critical building blocks but not sufficient on its own. If the individuals in the boardroom do not understand their roles as well as the relevant rules of engagement that govern the functioning of the board and if they do not have proper governance processes in place, things can still go terribly wrong. The level of ignorance often displayed in boardrooms as to the fiduciary (and in some instances even statutory) duties of board members to act in the best interest of the organisation, to the exclusion of the interests of their principals, can be mind-blowing at times. Considering that the board acts as the controlling mind of the organisation and that the organisation is completely dependent on the board to not only enhance but also protect its interest, it is not difficult to understand why we witness some of the corporate disasters out there. In a boardroom filled with individuals, a number of whom have their own agenda and interest as first priority, it is only a matter of time before disaster strikes.
It is often found that board members do not have an appropriate understanding of what is expected from them in law but also in being appropriate governors and custodians of the interest of the organisation. Not only this, they lack a basic understanding of the applicable rules and regulations that govern their functioning and as stipulated in relevant laws and regulations as well as the constitutional documents of the organisation. This level of ignorance, sometimes fuelled also by arrogance, can result in even the most qualified, skilled and mature individual finding themselves in the midst of a board that is failing dismally in its stewardship and leadership role.
Once we have the ‘right people’ in the boardroom who all fully understand, appreciate and execute their role vis-à-vis the organisation in an effective and ethical manner, we need proper process management to support them. Facilitating an adequate flow of information to enable informed decisions to be made, both within and outside of formal meetings, is a critical element of a high-performing board.
This requires a substantial number of elements and sub-processes that have to come together in a holistic manner to form a strong foundation from which a board can effectively function. These processes speak not only to the actual functioning of the board but also to those processes alluded to earlier that assist with identifying and addressing weak areas on the composition of the board, such as appropriate performance evaluations and succession plans. Also, these include processes around induction and ongoing development to further strengthen the talent around the boardroom table.
The King IV™ Report on Corporate Governance for South Africa, 2016 (King IV™) also highlights a number of important characteristics to ensure effective and ethical leadership in our organisations.
What is the point? The point is that an effective board is not an informal process. It starts with those having the authority to appoint individuals to boards in the private and public sector understanding the need to have the ‘right people’ in the room. These are individuals with the skills, background, experience and attributes that are appropriate and relevant to
the specific organisation. Thereafter, ensuring that these individuals fully understand the meaning and implications of acting in the best interest of the organisation requires proper induction, performance evaluation and ongoing engagement. Not only that, an appropriate understanding of the rules that govern the functioning of the board is essential in ensuring that actions and decisions taken on behalf of the organisation can withstand any challenge from those who, driven by own agendas and interest, may want to sabotage the work being done.
A lot has recently been said about the spectacular failures of boards of state-owned entities. Lots can also be said of the daily failures of boards in the private sector. The dynamics working against the establishment of high-performing boards are prevalent in both these sectors. It is time for those appointing the members of these boards and the boards themselves to realise that, as a start, it is about having the right people, doing the right things and doing things right!
Annamarie van der Merwe
First published in The Corporate Report, Juta, 2018
About the author:
Annamarie van der Merwe has been a corporate lawyer and company secretary for more than 27 years, acting in both the private and public sectors. She has a B.luris degree, a Bachelor of Laws degree and a Master of Laws degree. She has served as a board member in different institutions over many years. She is a member of the King Committee and was actively involved in writing a number of the King Reports on Corporate Governance. She is also a well- known presenter and facilitator of workshops for directors and company secretaries. She is the Executive Chairman of FluidRock Governance Group (Pty) Ltd.
*Kindly note that The King IVTM Report on Corporate Governance for South Africa 2016, Copyright and trademarks are owned by the Institute of Directors in Southern Africa” and the IoDSA website link is: http://www.iodsa.co.za/?page=AboutKingIV