Directors should focus on the ‘forest’ not ‘trees’

09 Feb, 2020 - 00:02 0 Views

The Sunday Mail

Vision 2030
Allan Choruma

Boards of directors should take a holistic governance approach and be responsible for the overall vision of an organisation, and not spend time micromanaging management and supervising daily operations.

As Monks and Minnows put it, directors are responsible for the overall picture, not the daily decisions — the forest, not the trees.

In short, the role of the board of directors is not to micromanage the chief executive officer (CEO) and their management team but to lead and control organisations.

Directors are responsible for overall company operations (the forest) and not operational details (the trees).

Conflict

The relationship between the board and management is a very sensitive issue in corporate governance.

There is a tendency for some boards of directors to usurp the functions of the CEO and their management team.

Some directors think they are responsible for everything. They do not know where to draw the line between their responsibilities and those of management.

When directors cross the line into operational matters, this inevitably creates conflict with management, represented by the CEO.

Management generally views this as unwarranted interference in their area of responsibility.

Consequently, this often results in a tense and hostile environment between the board of directors and management, and regrettably, this will affect the smooth functioning of an organisation.

Role of the board

In their special report on corporate governance best practices published in 2003, The Conference Board (USA) clearly outline the role of both the board and management.

The report suggests that a strong and effective board should be clear of its role in relation to management. In corporates, for example, the board’s duty is to focus on leadership, guidance and strategic oversight, while it is management’s duty to run the day-to-day company business with the goal of increasing productivity and shareholder value.

In most instances, conflict between the board and management often arises from failure by the board to appreciate its role.

Most boards tend to think they are responsible for everything.

Why have a CEO and management team if the board can do it all?

I have often heard of boards that totally usurp CEO and management functions by involving themselves with mundane operational issues such as hiring of junior staff; purchasing desks, chair and stationery, including determining where company vehicles should be serviced, who repairs electrical faults and plumbing, who supplies flowers to the boardroom, where airplane tickets should be bought for business travel, and so on.

With due respect, one wonders where the board gets time to do all that.

Surely, these are not strategic transactions that warrant board attention.

Independence

I am not advocating that management should act independently of the board of directors. No!

It is common cause that management should act under guidance and direction of the board.

The board is ultimately responsible to shareholders for the company’s performance.

Board Responsibility

According to The Conference Board report cited above, the board responsibilities in corporations generally include the following:

  • Approving corporate philosophy (vision) and mission;
  • Selecting, advising and monitoring CEO and management;
  • Reviewing and approving management’s strategic and business plans;
  • Reviewing and approving a company’s financial objectives and plans;
  • Reviewing material transactions;
  • Monitoring corporate performance against corporate and business plans;
  • Ensuring ethical behaviour and compliance with laws;
  • Assessing its own effectiveness in fulfilling board objectives; and
  • Fulfilling other functions prescribed by law and company articles and memorandum.

It should be noted that the specifics of a board’s role vary according to company size, strategy, composition of board, talent of CEO and management, and nature of business.

Boards need to familiarise themselves with their core responsibilities.

Effective Board

An effective board works within its mandate. As fiduciaries, the directors’ responsibility is to be active monitors of management, and not to be managers themselves.

Boards should realise that they need to partner with management to ensure that an organisation operates viably and in the best interests of its shareholders and stakeholders.

Directors should not mistrust management but rather allow management to work with some degree of latitude and independence.

The board and management are complimentary governance structures and should work in tandem and harmony.

A board that micromanages the CEO and their management and interferes too much in running an organisation does not fully understand its fiduciary duties and responsibilities.

It is also a sign that the directors either lack confidence or mistrust the CEO and management team. Some boards micromanage an organisation’s operations simply because they want clout or are power hungry, or in some extreme cases, they may want to seek material gain.

State Enterprises and Parastatals

State Enterprises and Parastatals (SEPs) are in the public domain since they provide public services.

Their governance practices, therefore, are likely to be scrutinised more than private corporations.

The media has often reported about SEPs boards of directors who interfere in management and operational issues.

Such boards do not know where to separate board and management functions.

They micromanage the CEO and management to an extent that they frustrate their initiative and innovation.

In the end, the CEO and management become frustrated and eventually quit.

For example, we have witnessed instances where responsible line ministers and board chairpersons for SEPs usurp management functions to an extent that the CEOs become their shadows or stooges.

The recently promulgated Public Entities Corporate Governance Act is a progressive piece of legislation that clearly outlines the different roles and responsibilities between boards and management of public entities.

This Act, if implemented in letter and spirit, will no doubt enhance corporate governance standards in public entities.

Role clarity and separation of responsibilities between the board of directors and management is essential in enhancing corporate governance practices in all sectors.

As Zimbabwe drives its economy towards Vision 2030, we need to strengthen our corporate governance standards in both the public and private sectors in order to foster sustainable economic development.

 

Allen Choruma can be contacted on e-mail: [email protected]

 

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