How effective is your board in meeting your organisation's mandate?
By Dr Benson Okundi
Partner, Government and Public Sector Leader, PwC, East Market Area.
Introduction
The board is the apex of Governance in any organization. It should be composed of competent, diverse, and qualified members capable of exercising objective and independent judgment. The board should have appropriate autonomy and authority to exercise its functions and should be accountable to shareholders and stakeholders and act responsibly towards stakeholders.The process of board appointment is crucial in ensuring an appropriate board composition that's fit for purpose in delivering the board’s mandate. The process should be transparent, open and fair and importantly, ensure that appropriate skills, expertise and experience that the board requires is achieved.
For public sector entities and state corporations, in most cases, the appointment process is guided by an Act of parliament that establishes the organization and guides its operations/activities. The appointment process in the private sector is varied, depending on the nature of the organization, its legal registration status, and relevant governance instruments that govern its operations.
From the apex, the Chairman has a crucial role in unifying and harnessing the full capacity of its members for effective delivery of their mandate. The Chairman should encourage and provide equal opportunity to all members to participate in their meetings. Through their effective and efficient chairing, they ensure the agenda is comprehensively dealt with and clear resolutions are made for management implementation.Professional development and board induction provides a foundation for an effective board. Induction helps members understand their roles, the organization and the industry in which they operate, stakeholders, legal and regulatory framework that are relevant to them. In many ways, this helps with induction of members into the organizational culture.
It’s in board meetings that deliberations take place to address several important aspects of the operations of the organization. Through a focused board meeting, clear action points are generated with timelines and responsibilities for implementation. For board meetings to be focused, board members must prepare adequately. Adequate preparation begins with a calendar or schedule of board and its committee meetings throughout the year. Of course, in addition to scheduled meetings, ad hoc meetings are expected to deal with emerging issues. Often, board members are busy people with other engagements, and therefore a board calendar of meetings and events help them to secure time for board meetings.
In exercising judgement, board members must be independent and without bias. Independence of mind is important in making board decisions. If a board member has an interest in a subject of board discussion, it’s important for the member to declare the interest at the beginning of the meeting to enable board members to decide on how to handle that matter. It’s common practice to excuse board members from discussions involving subject matters where they have interest.
Moreover, it’s important for board members to distinguish their roles and responsibilities from that of the management. This is a common ground for conflict between the board and management and should be a continuous area of emphasis during board meetings, induction and continuous development programme. Because if not checked and dealt with appropriately, can derail the functions of the board and management.
Board members are required to provide oversight and strategic direction to the organization whilst management as represented by the CEO, deals with daily implementation activities of the organization. It’s important to distinguish the roles, and at the same time ensure that synergies at both levels are fully tapped.
Besides that, firms should invest more in Board evaluation to review board performance over a period. Good practice requires a board evaluation exercise to be carried out at least once every two years. Evaluation is normally carried out at the board level, i.e., board performance is reviewed as a whole, at individual board member level i.e., each board member’s performance is reviewed, and at the committee level i.e., board committees are reviewed.
At the board level, the objective is to determine effectiveness and performance of the board. The evaluation will consider among others: board’s understanding of its roles and responsibilities, alignment of the board to the strategy of the organization, quality of board meetings and implementation of board resolutions. At the individual board member level, evaluation considers, broadly, individual board member’s performance in terms of contribution to the board agenda, quality of contribution during meetings and the members proactiveness in performing activities of the board. At the committee level, the evaluation focuses broadly on the performance of board committees in line with the committee’s mandate and charter. The evaluation can be done internally or externally. External evaluation involves hiring or recruiting an independent consultant to carry out the exercise. Whatever method is adopted, it’s important that the exercise should be done in an independent manner, and the feedback process following evaluation, be managed properly.
The board should be given feedback, likewise to individual board members and committees. The chairman of the board plays a significant role in the feedback process working with the evaluator, to ensure feedback is given so that areas of development are closely monitored and implemented accordingly. It is also important for firms to recognize the role a CEO plays in driving the entity’s strategy. The CEO is the link between the management and the board. The board therefore entrusts the CEO with the responsibility of managing the entity whilst maintaining accountability at the board level. It’s the responsibility of the board to ensure an appropriate CEO is recruited for the success of the entity. The CEO needs to have relevant industry skills and experience, professional and technical competence backed with interpersonal skills such as negotiation, communication and conflict management. Whilst the board has responsibility of recruiting the CEO, the board should carefully consider the mode of recruitment to ensure a free, fair and transparent process is adopted for best outcome. This is one of the areas with potential conflict of interest among board members.
