The governance architecture of every organization has a direct bearing on the performance and growth of the organisation. Business sustainability and continuity cannot be effectively evaluated if it is not situated within the context of quality leadership.
The central body in the governance architecture of every company is the board. It is the pivotal unit around which every activity of the organization revolves because it is the collective thinking and the strategic influence of the board that determines the direction and the growth of that organization.
The performance and the exact outcome of every business is only but a reflection of the mindset, capabilities and competencies of those charged with governance. There is a popular English adage which says that “a fish rot from the head down.” This adage is particularly true when discussing corporate boards because, leadership is the root cause of a company’s failure.
In our part of the world, where appointment to sit on boards of public corporations are largely based on the meritorious service and contributions to a political party or the closeness to a political figure, many Ghanaians welcome “directorship appointments” as a prestigious honour and an “allowance- taking “ opportunity.
More often than not, the competencies of these persons are not carefully evaluated before such appointments are made. The cascading effect is the lack of independence of persons appointed on such boards and the lack of courage of the board to represent the common good of the citizenry.
This has led to the collapse of many state owned enterprises and rendered most public corporations in “ICUs” and under perpetual government support creating a huge public debt for the country.
People sit on boards just for the purpose of taking allowances and accruing for themselves prestigious titles. Some of such persons do not give any contribution in the boardroom, not even seconding motions or saying opening or closing prayers at board meetings.
The situation in private companies is no better; it is disturbing to note that, directorship, in most private companies, is seen as an inheritance. There is nothing wrong with a relative taking over a directorship position in a private company.
The challenge however arises when the relative is not adequately prepared to see such an appointment as an opportunity to serve or contribute to the growth of the entity but rather a bonafide entitlement by way of inheritance which must be milked and enjoyed by all possible means.
This deep-seated culture of “inherited directorship” is cancer to most Ghanaian private businesses. Several businesses which had the potential of becoming conglomerates never existed longer than the life span of their founders. When the founder of a company dies, the company has no defender, it is feasted upon by these “inherited directors” till the company dies.
The role of directorship cannot be assumed by mere inheritance because it requires a certain level of skill, knowledge and competence to be able to drive the corporate agenda.
The collective productivity of businesses, be it public limited companies, private limited companies or state-owned enterprises constitutes the GDP or national wealth of the country. Therefore, persons appointed to serve on boards should welcome the opportunity as a higher call to serve and also contribute their quota to ensure an increase in the country’s GDP.
The board is an agent of the company and has the duty to ensure that business activities are carried out in a way that supports and represents the interests of the shareholders who appointed them to serve and act on their behalf.
The board as an agent of the company, owes a fiduciary duty to the company. This fiduciary duty includes the duty of loyalty and a duty of care. The duty of loyalty requires members of the board to avoid any possible conflicts of interest with the company.
The Companies Act 2019 (Act 992) requires that directors put the interests of the company ahead of their personal interests when handling the business of the company. The duty of care also requires that when an officer is making a decision, good faith is exercised in a manner that is prudent and would promote the company’s best interest.
A breach of these fiduciary duties may lead to directors being held jointly and severally liable for any loss, damage or liabilities incurred by the company. Persons who accept appointments to serve on corporate boards must carefully assess their capabilities and competencies as to whether they are in the position to fulfil these fiduciary duties
The traditional role of the board, thus maximizing shareholders’ wealth or representing the interest of shareholders has been expanded to include overseeing the financial performance and regulatory compliance as well as adding value to the strategic deliberations of management by reviewing management strategic proposals and bringing different perspectives that management may not have.
Board members are therefore required to have at least a rudimentary understanding of the business of entity and should be very familiar with the fundamentals of the business in which the entity is engaged to be able to execute their roles effectively. When dealing with the company, the board is required not to be a passive observer neither is it required to interfere in the daily business of the company; rather, it is required to provide constructive guidance to management.
As a governing body, it is required to develop systems, processes and strategies that ensure that an organization is run effectively. It is tasked with defining the company’s path and direction and overseeing the company’s exposure to various risks.
Corporate boards also have the herculean task of setting the right tone for ethical behaviour within the organization. They are responsible for creating a sustainable ethical culture that reflect the organization’s vision, mission, strategies and external relationships by ensuring that ethical risks and opportunities are promptly and properly identified, assessed, monitored and reported.
The corporate board should therefore comprise of individuals of integrity and courage, who have the relevant knowledge, skills and experience to bring judgement to bear on the business of the company. Board members must have the courage to raise their hands when they think another point of view is appropriate.
Directors who do not have ability to challenge the views of CEOs when they consider alternative views might be more helpful, do not have the competence to be on boards. Boards should also be very diverse, and should include persons of different professionals, gender, age, background and multiple identities who possess the right business acumen and have passion and time for the entity.
A corporate board member must be a good listener. He/She should be able to determine the thinking of management beyond what they say and present at the boardroom. Board members should be very critical and analytical with a knack for adjusting to current trends and business dynamics.
For instance, where a company is in deep trouble, probably facing liquidity challenges, the board is required to be very prescriptive in dealing with the issue. For a company that is being well managed, the board is required to be very supportive but ask good questions which delve into the ethical dilemmas the entity might face in the future.
It is therefore important for persons who are called to serve on boards to approach the call with the mindset of a double edged sword, where benefits such as the prestige and remuneration, are weighed against the time commitments and the demands that may be placed on them.
There must also be a clear understanding of the roles they are to play and the competencies and capabilities required in line with those roles. Once this foundation has been laid persons appointed to serve on boards would be poised to make meaningful contributions to the growth of the entity and the country at large.
The writer is a Chartered Accountant. He is a member of the Institute of Chartered Accountants (Ghana), Chartered Institute of Management Accountants (UK), Chartered Global Investment Analysts Institute (USA), Chartered Institute of Taxation (Ghana) and the Institute of Internal Auditors (Ghana and Global).
Contact: [email protected]
