Article by Shephard Kembo
Recent events in the corporate world where we have witnessed an increased number of corporations going through voluntary and or forced corporate rescue management have necessitated the need to focus and scrutinise the role of Executive Management and Non-Executive directorship in the corporation.
Whilst the problem of corporate failure could largely be attributed to challenges in the operating environment, it can be argued that in some cases, the failures can be attributed to Executive Management and their boards navigating the highly fluid and ever-demanding corporate operating landscape.
Some have questioned whether the problem may not be due to questionable competence of the members of the Boards. Recently there have been suggestions that a lot of corporate failures are due to outright corporate arrogance and know-it-all culture deeply entrenched, embedded and now engraved into the Zimbabwe corporate fabric.
This glaring manifestation of incompetent and ineffective corporate boards has resulted in louder calls for shareholder activism in publicly listed companies and calls for continuous training and development of board members and executive management. A culture of corporate arrogance from the executive management level usually cascaded down to the shop floor level. The net result is a corporation that cannot operate at its full potential and could ultimately be a rescue case.
In this installment, we would like to examine how shareholders-appointed Directors could make greater contributions by directing management and safeguarding the corporation from being a candidate for corporate rescue.
Generally, it should be expected that all appointed directors should ensure active board participation in all board discussions. The appointed individual directors should always bring in value, leveraging their industrial and commercial expertise to inform corporate strategic decisions.
This can be made effective through holding management accountable and effectively monitoring the corporation’s financial performance. The directors should be seen to be always advocating for shareholder interests. A competent and effective director should contribute to a healthy board culture through constructive criticism and effective communication.
Effective ways of adding shareholder value as a director:
Strategic Insights: Every director should be capable of utilizing and discharging their gained competitive business knowledge and experience to identify the business’s growth opportunities. The director must have a Deep understanding of the business – Every appointed director should thoroughly familiarize themselves with the company’s operations and processes.
The directors should understand the company’s financial position and its prevailing market landscape. The director must also have a complete understanding of the key strategies, plans and expected results of the corporation that they approve of to be able to provide informed, and relevant input during board discussions.
Directors must be able to dissect, analyse and predict future market trends for the market. The directors must be able to look at and analyse strategic risks that may not be readily apparent and visible to management in the short term.
Effective questioning: An effective and competent director must always possess and have remarkable skills of probity. The director must always be asking probing questions during board meetings. The probing must be done to challenge management assumptions and help uncover potential issues. Probity helps management to be thorough and ensure all aspects of decision-making have been comprehensively looked at.
Financial Oversight role: Effective directorship involves active participation in financial statements reviews, budgets and all company or operations performance indicators. This helps monitor the company financial health status and identify areas that may require improvement on time.
Risk Management: The directors must help with risk assessment, that is identifying and exposing potential risks to the company’s operations and strategic plans including proposing mitigation strategies to protect shareholder value.
Alignment with shareholder interests: Directors should understand that they are employed at the service and discretion of the shareholders. The directors must make sure that the shareholders’ interests are always protected both for short-term and long-term gains perspective.
Constructive criticism: The directors must ensure that there is always the provision of honest feedback to management in a professionally respectful and highly effective manner. This must include highlighting areas that require improvement for the organization.
Board Culture: Directors must always strive to foster a culture of positive collaboration, actively listening to other directors’ perspectives. There should be active encouragement of very open communication between all parties that promotes respectful and robust debates.
Corporate governance practice: The directors have fiduciary responsibilities and are expected to ensure that the company adheres to high standards of corporate governance and ethical corporate behavior. This must include and not be limited to strict adherence to all relevant laws and regulations, and ethical practices.
Stay informed: There is no leadership without readership. Directors must continuously update their knowledge on industry trends including regulatory changes. Directors must always be kept abreast of changes in their operating environment to remain relevant.
Important considerations for directors
There are always important considerations for directors to remain relevant and effective, including the following:
Maintain Independence: Directors must know and appreciate that they serve the interests of their shareholders so they must avoid conflict of interest and always act with impartiality when making decisions.
Balance between oversight and Involvement: There must be an appreciation that whilst providing oversight, directors must avoid unnecessarily micromanaging management and they should respect management’s right to decision-making.
Effective Communication: Directors must understand the importance of effective communication without any room for ambiguity. Directors must express their concerns and perspectives to the board and management whilst also effectively and actively listening to other directors and management.
This brief expose is not directed at the corporate director fraternity. Rather it is directed at the laymen who may not be familiar with the role of directors in a corporate setup. Some organisations provide more in-depth information and training for corporate Directors. We would recommend that all directors should get formal training from such organisations.
Shephard Kembo is the Managing Partner at Globavel International Pvt LTD, he can be contacted at [email protected] and www.globavelinternational.co.zw or Whatsapp +263 772 446 731
