The New Non-Executive Director
- Johann Redelinghuys
- 02 Mar 2012 01:02 (South Africa)
Now that boards are urgently encouraged to transform, more of them are appointing people of diverse genders and backgrounds. In the process there are numbers of younger, less-experienced people willingly taking up invitations. It is, we suppose, partly the prestige, partly the extra compensation and maybe the challenge of diversion. Some are even making a career as professional non-executive board members, collecting three, four or more of them and making up what would be a reasonable full-time executive salary.
Others are taking on non-executive directorships while being fully employed and committed as a CEO or other senior executive. The rationale is that outside appointments would give the people better judgement and an opportunity to lift their heads “above the parapet”.
Chairmen now have a harder time running a good board meeting. When a board consisted of a few like-minded blokes who were happy to go along with the prevailing corporate culture, things were easier. Now, with most boards sporting a woman or two, and a crop of smart younger MBAs, decisions are being challenged more readily.
There are still very few boards where a split decision will result in a vote. Most of the time, the chairman will work carefully to find consensus and then take the board with him. But a vigorous debate, as good governance requires, with all members participating, is becoming increasingly difficult. The reason is that most boards have a few old hands with deep understanding of the business, and then a few newer members who are not able to participate fully because they don’t have the experience or background. Mostly they are able to contribute in a narrow area of established expertise.
Executive members often complain that the non-executives have to make far-reaching decisions, sometimes involving very big numbers, but lack the requisite understanding of the business to do this with any degree of real competence. This may be the reason why boards now tend to delegate more of their work to various board committees where a smaller group can engage more effectively. A recent study comparing the work of South African boards with their international counterparts found that in South Africa there are more board committees and that more of the work gets done in the committees than in the full board.
Company secretaries make sure that new board members have a proper induction at the beginning of a term, but it does not compensate for the broad business knowledge of the older guard. So the chairman has to work hard to find balance and meaningful governance.
There is also criticism regarding the preparation of some of the new board members. Because they don’t have the depth of understanding, papers provided in the board-packs contain analysis and information the significance of which they just cannot appreciate. To make matters worse, in some listed company boards, there are members who, because of over-commitment, have to leave early or arrive late. All this adds to the burden of the chairman who has to be tough at times to maintain a reasonable level of board performance.
The need for transformation is not going to diminish and the supply of previously disadvantaged potential board members is not going to expand suddenly. What is to be done? Already the Institute of Directors and some of the business schools are offering programmes for board member development, but the key issue is that board members themselves must set the standard, and in the most professional manner must exercise the utmost discretion before accepting board appointments, no matter how attractive the benefits and inducements. They must be prepared to invest the time and energy required to develop deep knowledge of the business and must approach the task with rigorous conscientiousness.
Recent criticism at the Tiger Brands AGM referred to the CEO who had accepted a second non-executive appointment on the board of a bank, a very time-consuming commitment. It also questioned a similar non-executive appointment of the chief financial officer. These comments enjoyed wide media coverage, but there are other examples, not so well publicised of chairmen and board members frustrated by some of their peers not being able to devote enough time or who have not made it their business to acquire a deep enough knowledge of the company and its issues.
South Africa does not yet suffer the poor reputation for shoddy governance which some other African countries do. There are, of course, initiatives such as the Mo Ibrahim Foundation which is heavily invested in raising the bar for African leadership and governance. But if South Africa is to maintain its good track record of boards working effectively, we would have to address the somewhat cavalier approach with which some of the new non-executive board members take on the job.
It is not only people in government who sometimes set a poor example of leadership, but also on the country’s listed company boards where more discernment is needed. Most chairmen would happily provide coaches or mentors if they saw that it would improve board performance. DM