Online Reporter
John P. Mkushi i
The number of corporate rescue cases in the Zimbabwe economy seems to be on the increase. Various reasons for this development have been advanced, and these are largely to do with a worsening operating environment for business.
Some of the challenges businesses are grappling with include the currently, prevailing hyperinflation environment, ever fluctuating exchange rates, the liquidity crunch, high interest rates, a relatively high taxation regime, and in some cases unfair competition from the informal operators.
The board of directors of a company are the legal custodians of the successful operation of a business entity. While the reasons for corporate failure may not be due to a failure on the part the board of directors to provide proper oversight into the business’ operations, it may be useful to revisit the question of what makes “Great Boards Great”.
Looking at recent cases of corporate failure, or near failure, a close examination of the boards reveals no broad pattern of incompetence or corruption on the part of the boards. Most of them followed the accepted standards for board operations.
So, what could be done to address this issue? While tightening the procedural rules for boards concerning the rules, procedures, composition of committees, executive reports structures, remain essential, consideration could be given to some of the following improvements regarding how the corporate boards operate.
- Board member skills.
One of the most essential requirements for an appointment to the board of a company is that one has either a skill that is relevant to the corporation’s businesses, or alternately they have a lot of experience in operating similar businesses.
Many board members get appointed because they are famous, rich, well connected and yet financially illiterate. Where necessary, there is no harm in offering training in certain aspects of the business’ operations to board members.
Board members must have the training and experience to analyse complex financial reports and understand the risks the business is taking.
- Equity involvement.
It is logical to assume that a board member with a significant shareholding would be more vigilant on the board, but this may not be the case. There is a need to balance ownership rights with the requirement of possession of the right qualifications to be a member of the board.
- Regular attendance of board and committee meetings.
Attendance of board and committee meetings is essential. Equally important is the preparation for those meetings. Members who sit on many other boards barely show up due to other commitments, and when they do, they are not adequately prepared to make effective contributions.
- Family dominated boards
It is accepted that most of the members of an effective board should be independent of controlling shareholders. However, there are many examples of family majority owned companies with boards dominated by the family members that remained very successful. Knowledge and skill should be the basis of appointment.
- Age profile of the board composition
The are two different schools of thought on this issue. One school is that boards are less effective as the average age of their members rises. This tends to be more applicable to corporates in high tech operations.
On the other hand, age may be an asset because experience does count. A balance between the two usually works.
A board that is made up of both the young and upcoming entrepreneurs and the mature, seasoned and experienced captains of industry would be the idlest composition.
- Individual board member accountability.
In law, board members are accountable for the success of the company. But in practice, many board members do not fully appreciate the complexity of the business they oversee. Individual responsibility can dissolve in a large group.
The less skilled members will tend to defer to the more skilled and thus absolve themselves of the responsibility of making the correct decisions. Every board member should be accountable for the decisions made by the board.
Performance valuation.
Board performance is probably one of the least evaluated activity in the corporation. I have no personal knowledge of one company in Zimbabwe where board performance is evaluated.
Behavioural experts and organisational learning experts agree that people and organisations cannot learn without feedback. No matter how good the board may be, it can only get better if it’s reviewed intelligently on a regular basis.
Such a review can include the whole board evaluation, individual director’s self-assessment, and directors peer review of each other.
A full board review can cover things like understanding and development of strategy, balance and coverage of all important aspects of the business, access to information, and the level of energy exhibited by the board.
For the individual self-assessment, the review can cover issues like time devoted to the board’s affairs, appropriate use of their skills, knowledge of the company and its industry, knowledge and awareness of key personnel and their level of preparations on board matters. The evaluation responsibility is usually the responsibility of the nominating or governance committee.
Space does not allow me to cover all the possible opportunities for making boards more effective. There are however, other subtle things a good board chairman can do to enhance the board’s effectiveness. These include the following:
- Create a climate of trust and comradeship.
Sharing full information with the directors can engender trust between directors Allowing directors to rotate committee memberships so that they can spend time with each other can reduce the development of polarising factions within the board.
- Manage the risk of internal conflicts within the board.
Reduce the risk of factions forming within the board by splitting up political allies when assigning members to activities such as site visits, research projects and meetings with external stakeholders.
- Foster a culture of free criticism of each other by board members.
Respect and trust do not mean the absence of disagreement. Rather, it means bonds between directors that are strong enough to withstand clashing viewpoints and being challenged in a positive manner.
- Frequently change the chairmanship of committees and directors’ roles
Playing different roles gives directors a wider view of the business and the alternatives available to it.
Relationships with major shareholders
One of the biggest challenges a board chairman faces is managing interference from a major shareholder. Once a major shareholder starts making management decisions and having direct communication with executives, the role of the board becomes one of rubber stamping the wishes of a single shareholder. The board ceases to be accountable for the company’s performance.
In conclusion, Boards of corporations should be the first point of call when the company’s performance is in decline, and not when it is already in intensive care and a rescue case.
John P. Mkushi is the executive chairman of Globavel International Pvt LTD, and past board member of various corporate boards/He is reachable on: www.globavelinternational.co.zw/Whatsapp +263 782 101010/jpmkushi@ cloverleaf.co.zw
Bongani Ndlovu