Professor Andrew Chambers is former Dean and Professor Emeritus of Cass Business School London. Professor Chambers has dedicated his career to stimulating better board performance and chaired many boards. Author of the Bestselling Chambers Corporate Governance Handbook, the UK House of Lords and the Times have cited him as a world-renowned governance guru. He would be sharing insights on how executives could move beyond compliance to value creation for all stakeholders at the programme Creating And Running Effective Boards And Directors on the 10-11 April 2019 at Eko Hotel and Suites, Victoria Island, Lagos. The programme is powered by TEXEM
Tell us about TEXEM?
These Executive Minds (TEXEM) pride themselves on their ability to customise programmes for their clients and TEXEM have a deep understanding of Africa. Also, TEXEM and its world class faculty partners have a very good grasp of contextual realities of Africa vis-a-vis fragile institutions, resource dependence, limited infrastructure and the huge size of government.
Beyond independence, what are the critical skills that a director requires to deliver a board’s oversight of company management effectively?
The two overarching responsibilities of the board are to set the direction of the company and to give effective oversight of management who are charged with the responsibility to implement that direction. In answering this question, we are focussing on the ‘oversight’ responsibility, not the ‘directive’ responsibility; and, yes, independence is important. Each board member should contribute to the board’s oversight responsibility – and that includes executive directors who are also expected to exercise independent judgement. When the executive director is acting as a board member, he or she shares with all the directors an oversight responsibility. ‘A director is a director is a director’ – whether an executive or a non-executive director.
But, apart from ‘independence’, what other personal qualities are needed to contribute to effective board oversight. The board need to possess these qualities collectively – we can’t expect each director to possess them in abundance. Here are some of them:
Effective board oversight does not only depend on the personal qualities of individual board members. It will not happen unless there is a culture of openness and frank discussion at board meetings. How frequently the board meets and the composition of board agendas and agenda papers are other factors. Ensuring that key issues come to the board in a timely fashion is important. Follow-up between board meetings is important too. It is hard to over-estimate the role of the board’s chair in promoting these and other vital board attributes.
Sourcing and retaining top talent were named by 41% of 5,000 directors surveyed by the Harvard Business Review as their number 1 challenge. How could boards obtain and retain top talent?
Of course, this is a challenge for both management and staff and also board positions.
Most leaders will affirm the real value of ensuring that the right people are recruited into critical positions. Their job is so much easier if their lieutenants are competent, highly motivated and with the right personal skills to fit into the team. It is usually better to leave a vacancy open until it can be filled with the right person – and that applies at senior management level as well as at board level.
For both executive and board positions, it is now commonplace to use search consultants. You may consider you know all the players in the sector who might be potential recruits, but you would be surprised how effective search consultants are at homing in on the best talent. Having search consultants as ‘middlemen’ to negotiate terms also shields the candidate and the organisation from the aggravation that direct negotiation might entail.
It is essential that the search consultant is given a clear specification of the nature of the talent being sought. That presupposes that the board (in the case of board positions) has taken the trouble to work out what talent it needs to refresh the board – which is important. The board should allow the search consultant to challenge this specification. Similar considerations apply to the use of search consultants to fill executive positions. Be careful not to specify just the technical skills sought: personality qualities are just as important.
Once top talent has been obtained, it is not only a challenge to retain that talent: it is also a challenge to ensure that retained talent is not losing its cutting edge but continues to perform to a high standard. The latter is where leadership comes in! Many of the measures which will aid in retaining top talent will also contribute to ensuring that talent continues to perform well: for instance:
While the above categories are germane to management and staff, they also apply in varied ways to board members. For instance, independent, non-executive directors are likely to perform better if they receive a reasonable fee for their efforts – even though many corporate governance codes take the position that it is inappropriate for independent directors to receive any performance=related rewards. Corporate governance codes often recommend that the performance of boards, board committees and individual directors should be evaluated, and feedback is important. For more insights on how to implement this, please attend my forthcoming programme organised by TEXEM scheduled to come up on the 10th and 11th of April in Lagos.
How can boards help manage economic and regulatory volatility?
It is often said that the only thing we can be certain about, is that the future is uncertain. We foolishly tend to plan on the basis that present trends will continue into the future, but they are likely not to do so. At present, the automobile industry is in disarray due to future uncertainty about diesel engines, electric vehicles, and future tariff-free automobile trading between Japan and EU, and Brexit. The question is whether their boards undertook proper scenario planning in a timely way. This emphasises the importance of risk identification, risk assessment and risk mitigation which should all feature at board level, not being left just to management. Risk committees of boards are becoming more critical. Boards should seek to be comfortable that key risks across the organisation have been identified and are being mitigated sufficiently so that the organisation is performing within its risk appetite.
Regulatory volatility is often likely to be predictable in its nature. Take for instance the current anti-social consequences of social media. It should have been possible for the boards of social media companies, and in particular, their independent directors, to have identified the risk of attracting governmental regulation of social media companies, and to have designed their business model to minimise rather than attract that risk. Many regulatory measures come into effect because of the misconduct of organisations and are therefore often predictable by management and boards of those organisations. When predicted, measures may be taken to minimise the risk of increased regulation. Alternatively, companies should be ‘one step in front of the regulator’, able to adapt to the changing regulatory environment in a timely way.
How can directors strike a balance between the pursuit of legitimate corporate strategic goals and the concerns of directors and executives who perceive themselves at increased personal legal risk for corporate wrongdoing?
Corporate strategic goals are only legitimate if they are legal, and achieved in legal ways. The old school of corporate governance might have averred that the sole aim of business is to maximise profit. But even Milton Friedman, that arch doyen of free-market economics, added ‘so long as it stays within the rules of the game’:
‘There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits, so long as it stays within the rules of the game …’
In their pursuit of added value, there is a temptation to sail close to the wind. It has been suggested that any business will be corrupt if it sees a chance of increasing value significantly, especially if (a) it considers there is little or no chance of being ‘found out’ or that the consequences will not be serious should discovery be made, and/or (b) its survival or future success will not be under threat. Perhaps a more sober assessment would be to say that a small proportion of businesses will be honest in all circumstances, another small percentage will be dishonest whenever the opportunity presents itself, and the vast majority in the middle will be easily swayed depending upon the opportunity and potential consequences.
The progressive, contemporary and positive perspective is that it is in the enlightened long-term self-interest of organisations to be socially responsible corporate citizens – which includes adhering to the law and best practice. Some would say that this is often just politically correct rhetoric formulated to encourage companies to behave on the broader ESG (environment, social and governance) interest. Make no mistake, making a profit is the principal social duty of business.
Effective hard and soft law, as well as regulation, are necessary counter-balances to the temptation for management and boards to engage in wrongdoing. Sometimes boards set management extreme and conflicting targets which encourage wrongdoing or questionable business practices. Perverse incentives for management, agreed by the board, can exacerbate this. Frequently the board will be unaware of the corners being cut by the administration. A key issue is how board obtain the assurance they need that their policies are being implemented by management and that there are no ‘banana skins’ round the corner that the business is likely to slip over. Many of the mechanisms boards have in place should be designed to mitigate this assurance black hole: space doesn’t allow these to be itemised here.
Across the world, the personal legal and regulatory responsibilities of management and directors are tending to increase, with a corresponding increase in penalties for violation. The risk to directors is reduced by an open culture, high-quality information to the board, open dialogue at board meetings and a commitment to high standards of corporate governance.
A director is a professional person. Professionals are not infallible, nor expected to be. But they will be culpable if they are negligent. The record of board meetings will be an important source to demonstrate whether or not the board and its members have done their duty.
Does the board have a role in monitoring the organisational culture and leadership tone?
Yes indeed. But it is much more than this. The board’s role is not just an oversight role in monitoring management with respect to, among other things, culture and leadership tone. The board’s purpose is to determine, inter alia, the organisation’s culture and leadership tone. More than that, the board must be exemplars of the organisation’s culture and leadership tone. If it isn’t, then the board shouldn’t expect the intended culture and leadership tone to be observed at management levels. The chairman of the board has a huge responsibility to ensure that the behaviour of the board and its members are strictly ethical.
What are some of the highlights of this forthcoming Masterclass at TEXEM?
It is newly designed to ensure that participants are made aware of the measures and approaches available to impact positively on board and director effectiveness; when they are appropriate; and how they may be implemented. The intention is to inspire participants with proven ways to re-engineer corporate governance in practice and to provide practical ‘toolkit’ advice on how to apply these state-of-the-art methods. Those with significant prior experience will have the opportunity to benchmark their understanding against best practices which will contribute to effectiveness. Networking and debating with other workshop participants will give valuable opportunities to identify the pitfalls and the tactics to resolve those challenges. Finally, allow me to state some of TEXEM’s unique selling points for you to be the judge of the quality of their programmes:
-Excellent reputation of offering tailored, relevant and context-rich executive education programmes which are relevant and has an impact on the bottom line.
-A network of key stakeholders in Europe and North America that we have worked with in the past, which we could deploy towards the delivery of executive development programmes.
-The impressive track record on customer satisfaction with 60% of our delegates being repeats customers.
-Understanding of the challenges that organisations face and committed, distinguished advisory board, which have a passion for the growth of Africa.
-Great networking opportunities with very senior executives as participants and over six hundred years of experience of participants and faculties in every programme thus steepening the learning curve of participants via peer to peer learning moderated by world-renowned faculties.
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