10 Mar 2017
Appointing the right Board
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Why playing board games gets in the way of good business
Appointing the right board depends on proper corporate governance and when this isn’t followed businesses can suffer.
It is easy to tell whether a business has not followed proper process when appointing board members by asking three simple questions.
- Did the executive seek objective or external advice to find the right board members?
- Did they understand what criteria make up a successful board?
- Are they aware of how the changing business world is expecting more agility?
In South Africa for example, the national broadcaster recently came under fire for being badly managed and the state owned enterprise managed to lose R411m (€29m) in one year. Part of the mismanagement was due to a dysfunctional board and now the South African parliament has been tasked with finding an interim board.
There are of course many examples of well-functioning boards within South Africa and globally. Many will agree, a strong board becomes the backbone of any business’s success, whether private or state-owned.
So what makes an effective board and why do businesses still play games when appointing them?
- Use an independent third party for board appointments. This not only streamlines the process but also assists with navigating the latest regulation and ensuring international best practice. Cronyism falls away in favour of merit through a robust appointment process. Businesses might see this as an expensive exercise but it reduces risk substantially and the cost of repeating the entire process within a few years.
- A strong board needs diversity. At the time of the 2008 crisis, mostly men dominated corporate governance leadership at institutional investors whereas now, seven of the 10 largest institutional investors in stocks have women as heads of corporate governance. Businesses can lean towards familiarity in leadership but the financial crisis showed just how business strategies driven by groupthink can cause entire economies to implode.
- A transformation agenda can encourage diversity but must resist being linked solely to gender or race. Businesses can allow for transformation to simply become a tick box exercise where quotas need to be reached. Diversity should not be compromised and businesses must look for it in age, working across geographies and life experience.
- Board appointments should not compromise on a lack of practical business skill and experience. New leadership may be reluctant to let old leadership return to the business as a board member. However, businesses must consider addressing a requirement for tacit expertise. Former executives of companies are re-joining their boards especially when there is a gap in a particular talent profile which is also linked to transformation programmes.
Businesses must play their part to develop an increasing talent pool of quality board members. Board assessments and board specific succession plans must be considered. Assessments help ascertain personality traits. As board members carry personal liability, it is vital to get the seats filled with people prepared to take on this risk.
The onus falls on all businesses to develop talent across their sectors and ensure boards have the right balance between diversity, transformation and practical skills.