The challenge for Public Listed Company Directors
Dinesh WEERAKKODY
An Indian MC speaking at a Luncheon meeting in India on the topic
"The Director's life" said, "Mention the phrase board of directors" to
the average investor, and they are likely to conjure up images of nicely
dressed men and women seated around a teak table, smiling congenially
and attending the odd board meeting.
This is entirely understandable; many annual reports prominently
feature glossy photographs of just such scenes. Then, he said, ask the
investor to describe the primary responsibility of the board of
directors and very few will be able to give you a definitive answer. At
the core of corporate governance, of course, is the role of the board in
overseeing how management serves the short-term and long-term interests
of shareholders and other stakeholders.
|
Listed companies need to get their
management firstly, to understand the anticipated
performance of the company and secondly ensure the company
is on track, because no one can keep a Board on its best
behaviour but the Board itself |
Therefore, a board's role he argued is to enhance shareholder value
and the long-term financial performance. It agrees strategy and assesses
its effectiveness by, for example ensuring that company operations are
in line with strategy; and monitoring financial and key executive
performance. Then some other matters are delegated to committees like
the audit committee (to monitor financial reporting and internal
controls), the nominations committee (to monitor directors' performance
and board appointments), the remuneration committee (to approve
executive remuneration and incentive arrangements) and
corporate/strategy/risk and social responsibility committees are
becoming increasingly common.
Right balance
This, he argued, underscores the need to have the right mix of talent
on a board i.e., age, education, skills and varying experience.
Therefore, he argued, if seat-warmers on a board were re-elected
unanimously, that means the entire board voted for them too and to
endure an ineffective or otherwise dysfunctional fellow director in a
public listed company is a recipe for disaster.
However, he said this is not to slam boards. As a whole, they add
real value. Nevertheless, boards frequently tolerate troublesome
performance from one or two of their members; it is simply too
time-consuming or impolite to eradicate. In addition, that,
unfortunately, is why too many board directors do not make the full
contribution they could, and should.
Then some Directors in listed companies in India he said are too busy
with their own companies, other directorships or their lives in general
to care about a particular board. He observed that some directors do not
have the passion to work up any interest. Still others lie low for job
security. In most Asian markets, the speaker observed prestige is often
the reward. As a result, many do not wish to challenge or probe data
given at meetings.
Nor do they venture out into the field to check the pulse of the
company, checking to make sure that what they are hearing in the
boardroom about values and strategy matches what employees are feeling
and saying.
Further, he observed some directors lack courage - a key
characteristic of any good board member. With every public or private
challenge, they pollute the boardroom by hyperventilating for a
settlement, even if it means selling out on principle just to get out of
the crosshairs. Sure, a board must settle a dispute on occasion, but
never before seeing the organization through a thoughtful discovery of
the facts. Such a process creates a culture of trust between management
and the board, and it is only in such an environment that risks can/will
be taken.
Responding to a question from a chairman of a manufacturing outfit
about the basic hygiene skills, a director needs to have to become an
effective board member and whether some boards have its own powerful Non
Executive Director committee within the board to take key decisions.
The speaker observed a director should be an expert or a
generalist's, be commercially savvy, credible, willing to commit time
and have the courage to take those tough and unpopular decisions.
As to having a secretive board-within-a-board the speaker argued that
turns other directors into second-class citizens such a dynamic
decommissions the majority of the board's brain - and what a waste that
is - but it also undermines the board's relationship with the rest.
Big picture
In conclusion he said directors must focus on the big picture issues
like CEO succession and strategy, meeting with the high-potential talent
and discussing industry dynamics, without getting caught up in all
operations details, because board members are there for their special
expertise, wisdom, sound counsel and judgment, not for the day-to-day
running of the business.
In the final analysis, as a board member, it is easier, he argued to
let a couple of benchwarmers stand around until retirement and to
tolerate a few disruptions for the sake of peace, but the problem is,
companies that uses public money to run their operations and make
money-selling products to the public need to be much more responsible,
accessible and be accountable to the public than ever before.
Therefore, all those listed companies need to get their management
firstly, to understand the anticipated performance of the company and
secondly ensure the company is on track, because no one can keep a Board
on its best behaviour but the Board itself.
In fact, Professor Sonnenfeld in an article in the Harvard Business
Review What makes great boards great, identified four characteristics of
successful boards.
Firstly, they operate in a climate of trust, based on timely access
to relevant information and people, without meddling in day-to-day
operations. Secondly, they foster informed dissent and discourage silent
board members.
Thirdly they don't typecast board members. You need 'big picture'
individuals who have the technical capacity to probe individual
businesses and products. Fourthly, they ensure individual accountability
and evaluate performance of directors as rigorously as is done for top
management. There may be lessons here for Sri Lankan companies. |