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Chapter 3: Board of Directors and Directors
Key messages:
Role/responsibilities of the Board
Board Charter
Director appointments
Director Remuneration
The Company’s business is managed under the direction of the Board of Directors. The Board delegates the authority and responsibility for managing the company’s business to the Chief Executive Officer, and through that individual to other senior management.The Board’s role is to oversee the management and governance of the company and to monitor senior management’s performance. The National Code on Corporate Governance (ZimCode) provides guidance on how the Board can effectively exercise its mandate to ensure that companies are given adequate leadership.
The Board is comprised of executive and non executive directors. Executive directors are full employees of the company and non-executives are not. Non-executive directors are not involved in the day to day running of the company.
The ZimCode advises that the board should have a bulk of its members as non-executive directors and majority of them should be independent. In assessing their independence many factors are considered. This includes their businesses, financial commitments, other shareholdings and directorship, involvement in businesses connected to the company and their independence in character and judgement.
Non-executive directors’ expertise and experience can assist the board or help inexperienced directors. They bring about an external viewpoint which allows for the development of wider, fresh and objective perspective within the boardroom. Non-executive directors are viewed as ‘‘guardians’’ of shareholder investment and responsible for sensitive aspects of the company such as remuneration and audit.
The Chairperson is the head of the board and it is recommended for that individual to be a non-executive. The CEO is the head of management and also sits on the board. The specific duties of the board chair, CEO, company secretary and various committees will be discussed in detail in the next series.
The ZimCode advises that the chairperson of public and listed companies should not double as the CEO as that can compromise accountability and transparency issues. It also discourages the CEO from chairing boards of subsidiary companies. In the same principle, CEOs of subsidiary companies are not suppose to be board members of the holding companies as it gives rise to conflict of interests.
The selection of suitable candidates to sit on a board is an important aspect that the ZimCode thoroughly addressed. It is one thing to appoint a board and ‘‘tick the box’’ and totally another thing to appoint a board which is comprised of suitable candidates with exceptional qualities and appropriate qualifications.
The latter being the board that is likely to deliver beyond the expectations of the shareholder. Selection of persons based on their capabilities enables the board to exercise its oversight role adequately. The board has to come up with the selection mechanism which is formal and transparent that also satisfies the diversity of its shareholders.
The ZimCode encourages the selection of persons with a good track record and traceable references, good leadership qualities, maturity, core competencies required by the company, managerial experience, industry knowledge and strategic planning experience to the board.
Selection of board members based on other grounds such as nepotism, patronage and so forth have proved to be some of the issues that compromised good corporate governance practices in some companies.
Directors are subject to periodic re-election by the shareholders even though it is recognized that performance can only be judged over the medium to long-term period. The ZimCode encourages independent non-executive directors not to serve beyond twelve years of consecutive four terms each.
This is done to allow new blood with the potential of bringing new ideas that can be useful to the company. The CEO is also subject to a ‘‘cooling period’’ whereby he/she should not join the board of the company until after three years of leaving that company.
For efficiency’s sake, the ZimCode discourages board members of listed companies from serving on more than six boards, and the board chair from chairing more than four boards. This principle is derived from the view that sitting on a company’s board is not about amassing board fees and gaining prestige but it is about adding value to that company.
The quality of a director’s contributions to a company is usually compromised when he sits on numerous boards which obviously overwhelm him and end up doing a disservice to other boards.
A board equipped with directors endowed with sufficient skills is able to provide strategic guidance as well as corporate and entrepreneurship leadership. The success of any company depends on it. A proactive board has to ensure that it has a board charter setting out its role and function right at its appointment.
The charter has to determine the company’s purpose, vision, mission and values and strategies to achieve the purpose. The board charter has to encompass the company’s key polices such as remuneration, director appointments and terms and so forth.
An important aspect that the charter addresses is the succession plan for board members, chairperson, directors and senior management of the company. Attention to succession planning can help ensure the board includes directors with a balanced level of institutional knowledge and fresh perspectives. The right mix of directors will be better able to oversee ongoing and emerging risks and provide appropriate strategic insights and direction. It is the board’s mandate to assure that management succession planning is adequate so as to prevent significant business interruptions.
The board charter also sets out the board’s roles and responsibilities. Some of its core responsibilities includes to review and approve significant corporate actions, monitor implementation of management’s strategic plans, approve the company’s annual operating plans and budgets, review the company’s financial controls and reporting systems as well as to approve the company’s financial statements and financial reporting.
For more information on the ZimCode contact: [email protected]
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