The Board, The Executive And Good Corporate Governance

THE BOARD, THE EXECUTIVE & GOOD GOVERNANCE

Ladies and Gentlemen, this paper attempts to look at the board and individual directors in context to organisational development. To achieve this, the key roles and duties of the board and its directors will be fully reviewed in light of current corporate governance concerns. This paper relies heavily on Review of The Role and Effectiveness of Non-executive Directors вЂ" Higgs Review вЂ" (2003) and the Combined Code on Corporate Governance (2006) for referencing.

The Combined Code on Corporate Governance, 2006 states that “every company should be headed by an effective board, which is collectively responsible for the success of the company.” On the issue of an effective board, Holland and Jackson (1998) identified six dimensions of board competency that seemed to capture the elements essential to effective governance:

i. Contextual: the board understands and takes into account the culture, values, mission, and norms of the organization it governs.

ii. Educational: the board takes the necessary steps to ensure that members are well informed about the organization, the professions working there, and the board’s own roles, responsibilities, and performance.

iii. Interpersonal: the board nurtures the development of its members as a group, attends to the board’s collective welfare, and fosters a sense of cohesiveness and teamwork.

iv. Analytical: the board recognizes complexities and subtleties in the issues it faces, and it draws upon multiple perspectives to dissect complex problems and to synthesize appropriate responses.

v. Political: the board accepts that one of its primary responsibilities is to develop and maintain healthy two-way communications and positive relationships with key constituencies.

vi. Strategic: the board helps envision and shape institutional direction and helps ensure a strategic approach to the organization’s future.

Holland and Jackson concluded by saying “The most effective boards in our demonstration projects learned to attend to how board members worked together as well as to what work the board did. Their members began taking responsibility for considering the ways the board carried out its work and for seeking new ways to improve performance. Rather than treating board development as something separate from regular board responsibilities, these boards came to see how well they did their work as a part of their ongoing responsibilities”. In other words, if every director is aware of what his or her duties are, both as individuals and collectively as a group, discharging those duties to the benefit of the organisation will not be a difficult thing to achieve.

ROLE OF THE BOARD

The primary role of the board is to monitor management on behalf of the shareholders. This is further stressed in a publication by the Institute of Directors (IoD), Standards for the Board, which states that the board's key purpose "is to ensure the company's prosperity by collectively directing the company's affairs, while meeting the appropriate interests of its shareholders and relevant stakeholders".

Stiles and Bernard in their book, Boards At Work, gave a another description of the role of the board as follows: “Boards, by general agreement, have three key roles: strategy вЂ" responsibility for monitoring and influencing strategy; control вЂ" maintaining control over the management of the company; and service вЂ" providing advice and counsel to executives, and providing an institutional face for the organisation.”

An overview of the board and indicators of good practice is as follows (IoD Factsheet):

Establish Vision, Mission and Values

 determine the company's vision and mission to guide and set the pace for its current operations and future development.

 determine the values to be promoted throughout the company.

 determine and review company goals.

 determine company policies.

Set Strategy and Structure

 review and evaluate present and future opportunities, threats and risks in the external environment; and current and future strengths, weaknesses and risks relating to the company.

 determine strategic options, select those to be pursued, and decide the means to implement and support them.

 determine the business strategies and plans that underpin the corporate strategy.

 ensure that the company's organisational structure and capability are appropriate for implementing the chosen strategies.

Delegate to Management

 delegate authority to management, and monitor and evaluate the implementation of policies, strategies and business plans.

 determine monitoring criteria to be used by the board.

 ensure that internal controls are effective.

 communicate with senior management.

Exercise Accountability to Shareholders and Be Responsible to Relevant Stakeholders

 ensure that communications both to and from shareholders and relevant stakeholders are effective.

 understand and take into account the interests of shareholders and relevant stakeholders.

 monitor relations with shareholders and relevant stakeholders by the gathering and evaluation of appropriate information.

 promote the goodwill and support of shareholders and relevant stakeholders.

BOARD COMPOSITION

Directors are traditionally divided into executive directors and non-executive (or outside) directors. Executive directors are persons who are dedicated full-time to their role in relation to the management of the company while non-executive directors tend to be “outsiders” brought in for their expertise,