Effective delegation of authority to the board of directors
The shareholders of the company wants a board which will help the company achieve its mission.
The mission of the company as understood by the shareholders plays a key role in selection of the caliber and mix of board members hence the effectiveness of the board.
There is a willingness in the case of public companies for shareholders to delegate their authority to an independent board but a bit of reluctance with shareholders of some private companies.
It is often a challenge for shareholders of companies especially private ones to appreciate the widening roles and responsibilities of the board.
Board members have a wider responsibility than protecting the interests of the shareholders.
The roles and responsibilities of the board are increasingly becoming universal and the board members together with management are fully responsible for the success of the organisation.
The shareholders and the boards are expected to do the right things in order for the organisation to achieve its mission.
What selection criteria should be used?
There is a tendency of selecting board members on the basis of technical know who as opposed to technical know how.
Those who are known are selected whether they qualify or not. For sure you cannot expect much from a board selected on the basis of technical know who.
The selection of a competent board should be based on the following;
- Capacity of giving value to the company
- The candidate must be of good standing both in business and community
- Possessing of adequate knowledge of the economy and the sector the business happens to fall under
- Good business knowledge through experience of running and managing business
- Expert knowledge in the core function of the business
- Understanding of risk identification and management
- Possession of finance and legal knowledge
- Good professional standing in case of the candidate happening to be a professional.
Are the board members able to carry out the roles and responsibilities?
My view board members are in position to carry out the roles and responsibilities provided they clearly determine their agenda and communicate the same to management. Short of this management will use its agenda in directing the work of the board. The effectiveness of the board will depend on whether they are driving the business of the board or they are being driven by management.
Roles and responsibility of the board is not always clearly understood.
There tends to be some challenges in the following areas ;
Recruiting chief executive officer
There are often some challenges on the Chief Executive being hired by higher authority like the group board and imposed on the local board for approval. To avoid challenges, there is a need for consultation between the local board and the appointing authority.
Approving the strategy and road map for its implementation
There is often low level or no consultation with the board members at the formulation level. The strategy is only brought to the board when all the processes have been done by management. Management brings the strategy papers to management for noting as the input of the board will not change anything.
Monitor and control
Some board tend to abdicate their responsibility of monitoring and controlling to management and they only come to know when the company is in crisis. This is mainly as a result of the board failing to fix its own agenda and relying on management to do the right things.
Why do shareholders or owners appoint a board?
At the time of appointment candidates are excited about the appointment and they often forget to ask the right questions. As a new board member, you have to confirm the expectations of the board by the appointing authority before you sign your contract. The contract should include your roles and responsibilities at board level. In case of conflict and disagreement , your contract comes into play. The expectations of the board depends on the appointing authority and quite often the expectations are vague. It is up to the board members to insist on getting their contracts in writing before accepting the appointment. I have noted over time the expectations of shareholders including some of the following;
- There are some owners who want to use the board purely for ceremonial purposes and therefore the board is only called when there is a ceremony to perform. Otherwise the owners continue doing things the way they have done them.
- I have also observed some appointing authorities use the board to bounce on it some new ideas and challenges with aim of finding solutions to challenges. The board is fully used as bouncing board and no more.
- There some organisations who use the board for purposes of complying with the regulatory authority requirements. I guess the board would not be there if the compliance requirement did not exist.
- There also organisations which make maximum use of the board for purpose of complying in accordance with the corporate governance practices.
The above expectations even if they are in writing does not anyway reduce the responsibility of a board to do the right things which are expected of the a board member.
John Muhaise Bikalemesa
Director: Big Drum Advisory Services Limited