The concept of ‘Influence’ and its impact on an organization’s performance is a subject that has held interest for quite some time. A two-edged sword that is often subject to more than one meaning, Influence may be positive or negative, the latter typically characterized by qualifying adjectives such as ‘negative’ or the more sublime ‘undue’ or ‘overwhelming’. The term has also often been used interchangeably (in certain contexts) with ‘power’ or ‘control’, thereby presuming a similarity in meaning with these words. Broadly speaking, an individual’s influence is determined primarily by what role he or she plays (or does not play) concerning an issue. Influence is therefore in the doing.
According to a foremost American Poet and Preacher of the 18th Century, William Ellery Channing, ‘Influence is to be measured, not by the extent of surface it covers, but by its kind.’ Viewed through the lenses of governance, this definition is quite important as it elucidates how a Director may choose to exercise his/her influence for the benefit or to the detriment of the Company in which Board he/she sits. In specifying the attributes of an independent director, Section 5.5.(ii) of the Securities and Exchange Commission Code of Corporate Governance for Public Companies provides that such Director must be one who ‘is not a representative of a shareholder that has an ability to control or influence Management.’ A Director’s ability or capacity to exert influence (of any kind) over Management in its administration of the affairs of the Company is therefore perceived as a factor that may erode his/her independence of thought and blur objectivity in exercising his/her decision-making responsibilities for and on behalf of the Company.
The exposure draft of the much-anticipated Nigerian Code of Corporate Governance 2018, in its Section 24.1.22, describes a Director as wielding ‘significant influence’ where such Director has the power to participate in the financial and operating policy decisions of a company; but not to control them. The Code therefore posits that an influential board member will exercise his rights of participation in financial and operational policy decisions affecting the company whilst not necessarily having any control over the outcome of any of these. The description therefore suggests that all Directors are influential, leaving one to ponder on what kind of influence they should exert whilst exercising their participatory rights as aforementioned.
There is further congruence on this subject with an alignment of both legal and governance doctrine in acknowledging the damaging effect that a strong negative influence can have on board synergy, objectivity in decision making and ultimately on the Board’s ability to perform its role of steering the Company towards the preferred strategic direction. To this effect, the Companies and Allied Matters Act, Cap C20, LFN 2004 in its Section 326(1) vests upon the Corporate Affairs Commission, the authority to appoint one or more competent inspectors to investigate and report on the membership of any company and otherwise with respect to the company for the purpose of determining the true persons who are or have been financially interested in the success or failure (real or apparent) of the company or able to control or materially to influence the policy of the company, where it appears to the Commission, that there is good reason to do so.
Whilst the benefits of a positively influential Board on the fortunes of the Company cannot be underscored, in like manner, a looming, self-serving figure whose sole concern is the pursuit of individual or narrow interests has, over the course of history, been the euphemistic equivalent of a poisoned arrow that has led to the demise of many corporate entities across the world. The situation is worsened when such influence is embodied in the personality of the CEO, who has direct stewardship of the affairs of the Company, hence the well-referenced Agency theory.
To checkmate the adverse effects of allowing an individual negatively influence the Board in its performance of its oversight responsibilities, Governance practitioners advocate having in place a strong, diverse Board comprised of objective, competent and confident individuals, knowledgeable, sound of mind and independent of thought. Indeed, a Board with a higher number of truly independent directors is more likely to resist the potentially opportunistic behavior of Executive Management (Frankfurter et al., 2000; Kosnik, 1987). Significantly, and also from an agency perspective, independent board members are reckoned as being far less likely to collude with management for personal benefit (Fama and Jensen, 1983).
Bringing it all together, Directors must always bear in mind that an important part of the Board’s oversight role is its responsibility to act as the conscience of the Company and thereby establish an effective framework for monitoring both executive and non-executive behaviour and reining in the potential for opportunistic behaviour on the part of Management by providing executives with the requisite incentives to pursue appropriate stockholder goals. Beyond the propriety of avoiding a domineering figure on the Board to discourage the pursuit of self-serving or parochial interests, Directors must always be mindful to their ultimate fiduciary responsibility to act Uberrimmae Fidae (in utmost good faith, serving the best interests of) the Company (their principal), an ethical tenet, the violation of which has far-reaching corporate, legal and reputational consequences for the Company, its stakeholders and for such errant Directors themselves.