As useful as a Board of Directors is to an organization, it can only be impactful if it is effective. An effective Board will provide direction and guidance, ensure that Management works towards maximizing shareholder value and meeting other stakeholder expectations. To be effective, the Board most be composed of competent individuals who bring to the table sufficient diversity of skills and experience. The Board would have a Charter (which actually guides it and is not consigned to the Company Secretary’s filing cabinet) that sets out a transparent process for appointing Directors, the role of the Board, its responsibilities, delegation of authority, Director tenure, etc. The Board should also have an effective Committee system that ensures matters are robustly treated before they come to the Board.
A dysfunctional Board will expectedly not deliver value and is a waste of everybody’s time. What are the tell-tale signs of a dysfunctional Board?
Ineffective Chair – The Board Chairman is first amongst equals and leads the Board. The Chairman must be a unifying presence with the ability to guide the Board to a consensus in decision making. An effective Chairman should have a good working relationship with the CEO, and enjoy the respect of other Board members. The effectiveness of a Board is dependent largely on the Chairman’s industry knowledge, leadership skills and influence on Board processes. He/she is expected to have extensive business leadership experience, including crisis leadership, be collaborative and restrained in style, resilient, possess complete candor and have an expectation of same in others. He/she is expected to downplay self-interest, serve as a trusted counselor and partner of the CEO and display a passion for good corporate governance. The Board Chair should also be able to listen well and get Directors to express underlying concerns.
Overbearing CEO – CEOs are very powerful humans! Sometimes they abuse the significant power they wield and lord it over a weak Board. Where the CEO determines who gets appointed to the Board, handpicks the Chair, fixes Director remuneration, determines what matters come before the Board and generally calls the shots, the Board’s effectiveness is impaired. This scenario plays out when the CEO is also a significant shareholder and is seen as the de facto “owner” of the entity. In many cases, this often breeds factionalism on the Board with a faction being “loyal’ to the CEO and the other constantly at logger heads in an attempt to assert the authority of the Board.
Ineffective Directors: Where individual Directors have limited cognate experience, are ill prepared for meetings (don’t read board packs) and do not have access to continuous training, they will not add value to the Board. Such Directors will not contribute meaningfully at Board meetings. Similarly, where the composition of the Board is not sufficiently diverse – homogenous (all male), too old (or too young – which is a rarity), members drawn from the same industry – it will not be effective. A Board is dysfunctional where Directors sweat the little things to the detriment of the big picture, tend to micromanage and have significant self interest in the affairs of the enterprise.
Ineffective Committee System: Board Committees are designed to support the Board in the performance of its oversight role. Each Committee Charter will spell out the terms of reference of the respective Committee. The Committee will drill down on matters within its purview and make recommendations to the Board. The Committee System is superfluous where matters already deliberated on by the Committee are again re-opened and considered at length by the full Board. This also ties into the effectiveness or otherwise of the Board Chair. Where the Board is not satisfied that the Committee has done a good job, it should send the matter back to the Committee with clear directives and timelines rather than delve into to matter. Ever wondered why some Board meetings go on for hours on end – here’s why!
Poor Management Reporting: Typically, Non-Executive Directors complain that they do not receive sufficient information to aid decision making. Management, recognizing that there is an asymmetry of information between the “insiders” and the Non-Executive Directors, should ensure that as much information as is required is provided in a timely manner to the Board. This responsibility would not have been discharged if Management dumps tons of reports and documents on hapless Directors expecting them to make sense of it. The Board should define the kind of reports it requires from Management, the frequency of such reports as well as the reporting format. Executive summaries should be an integral part of all reports.
Ineffective Secretariat: To a large extent, the ability of the Board to function effectively is aided by the professionalism and competence of the Company Secretarial team. The Company Secretary should ensure that Board Packs are delivered in good time to Directors to facilitate meaningful participation, work with the Chairman to ensure the Agenda is not over loaded, turn out concise, accurate and well written minutes in good time and circulate action points timeously to ensure that Board decisions are implemented. Working with the Chairman, the Company Secretary should ensure that new Directors are properly inducted (even where they are not green horns) and that Directors attend periodic training to keep them abreast of emerging trends.
Bringing it all together, the Board is ultimately responsible for its effectiveness or otherwise. With the Chairman taking the lead, the Board should ensure that it is not a ceremonial appendage, meeting quarterly over tea and coffee to flip through a pile of documents. Due regard should be paid to appointing a respectable Board Chair and only Directors that will add value should be appointed to the Board. The Board should clearly delineate the authority limits of the CEO and not allow him/her to hijack its authority. An effective Board will deliver tremendous value to the entity and provide strategic direction that assures sustainability.
Bisi Adeyemi is the Managing Director of DCSL Corporate Services Limited. Kindly send reactions and comments to badeyemi@dcsl.com.ng.