Chief executive officers have received public opprobrium for poor governance in contemporary corporate failures experienced in Nigeria, as was the case of the bank CEO’s ousted by the Central Bank of Nigeria. However, this apportioning of blame on the CEO misses out on a core group- the board of directors, where the Chairman provides leadership.
The Chairman, along with other board members are rarely publicly mentioned nor sanctioned in those failures whereas the CEO is under scrutiny. The board bears ultimate responsibility for ensuring that management performs in the best interest of stakeholders. Corporate governance failures within organizations are clear pointers to the fact that the board did not discharge its tasks effectively. It is imperative that board performance becomes a key index of organizational health.
Having realized the importance of boards being effective at discharging their tasks, both national and international corporate governance codes have entrenched board performance measurements. In Nigeria, the Securities and Exchange Commission’s code of corporate governance provides that “ the board should establish a system to undertake a formal and rigorous annual evaluation of its own performance while the Central Bank’s code goes further to say that results of board performance review be presented at the annual general meeting.
South African’s King Code of Corporate Governance 2009 specifies, “The evaluation of the board, its committees and the individual directors should be performed every year”. Likewise, the UK Corporate Governance Code, which applies to all companies with a premium listing on the London Stock Exchange, states “the board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.”
So what are the key tasks of a board against which performance is to be judged?
An effective board is one that carefully balances its business between four key tasks without overly skewing its focus in one direction to the detriment of others. The Institute of Directors (IoD) has identified four key tasks of a board as being to establish the vision, mission and values that guide the organization’s current operations and future development; set strategy and a fitting structure for the effective performance of organizational objectives; provide oversight of authority delegated to management and ultimately, the board is responsible for meeting stakeholder expectations.
For example, a board of directors might become so engrossed in providing oversight to management that they fail to adequately see and define the big picture objectives and goals. To achieve its tasks, a board ought to organize itself and its meetings in such a way that allows it perform efficiently and effectively. It may provide oversight and control of management through the establishment of standing and ad-hoc committees and may employ the use of external consultants in developing and assessing strategic options.
Successful discharge of these key tasks by the board will result in more balanced direction and control which should also translate, all things being equal, into better-run organizations with visions that are inspiring yet practicable, values that are embedded within the firm’s culture, appropriate strategies owned by the board and management, accountability from senior management and a demonstrated commitment to meet the interests of shareholders and other relevant stakeholders reliably and ethically.
By setting the vision, mission and values of an organization the board defines a company’s identity and raison d’etre, and steers the company in the desired direction. Setting strategy and structure entails reviewing and evaluating present and future opportunities, threats and risks in the external environment, and current and future strengths of the company in order to determine strategic options, select those to be pursued, and decide the means to implement and support them. A board must make sure that the company has a strategy that is right for now and for the future, and that the company’s organizational structure and capabilities are appropriate for implementing the chosen strategies. Providing oversight of authority delegated to management involves determining performance measurement criteria to be used to evaluate management performance in the implementation of policies, strategies and business plans. It is also a board’s role to set up effective internal controls to prevent abuse of authority by management. Internal controls should be regularly reviewed for their integrity through the use of internal and external audits. Also, a board should develop effective channels of giving feedback to management regarding its performance. This is partly why a board ought to carry the bulk of the blame for not discovering and remedying management excesses in time before they lead to full-blown corporate scandals.
Finally, a board is to exercise accountability to shareholders and be responsible to relevant stakeholders. According to the Standards for the Board by IoD “ The board’s key purpose is to ensure the company’s prosperity by collectively directing the company’s affairs, while meeting the appropriate interests of its shareholders and relevant stakeholders” It is however up to each board to judge which stakeholders it considers relevant after considering the regulatory and business environment. In meeting stakeholder expectations, the board must understand and take into account the interests of relevant stakeholders and ensure that communications to and from relevant stakeholders are effective. Consistent monitoring of the state of relationship with relevant stakeholders is necessary to prevent a loss of goodwill that could impact the business negatively.
These four key tasks are distributed within an impact matrix. Meeting stakeholder expectations and providing oversight over management are internal to the company and its stakeholders while setting the vision, mission and values and the setting of strategy impacts external constituencies such as competitors, regulators, business partners, etc. Alternatively, these tasks can be seen in terms of time- frame, Vision and mission and meeting stakeholder expectations essentially provide an overview of where a company is headed in the long term whilst oversight of management and setting strategy and structure contribute to the quality of short-term execution.
Is your Board performing? Should companies and shareholders only select directors that can perform the aforementioned tasks effectively? Do Nigerian directors realize that their perks and emoluments come with serious fiduciary responsibilities? Should directors not also stand trial with CEOs and Chairmen when next we experience corporate governance failures?
Soji Apampa, a member of the Premium Times editorial board, is the co-founder of The Convention on Business Integrity, which sponsors the Corporate Governance Rating System in partnership with the Nigerian Stock Exchange. Email: email@example.com twitter: @sojapa