BOARD OF DIRECTORS VS BUSINESS SUSTAINABILITY – TRAINING
How can we fully benefit from hiring a board of directors/advisors?
This training is a continuation from the previous training that was about hiring a board of directors. We want to have you understand what and how you can fully benefit from the board of directors that you hired. Carried on by non-other than MR. OBITA PATRICK, a managing director at the HUMAN RESOURCE CENTER, who happened to be the lead trainer at the previous training. This time round, he is focusing on the use of the board of directors and how to get value out of the board of directors and their membership. The only way a company can grow to the next level is by managing well their board of directors and advisors. Am going to be looking at some of here below.
PILLARS OF GOVERNANCE.
As a matter of fact, we must understand the pillars of governance at the very basic, because, the board of directors are at that level. In order to have good management, these pillars must be put in place.
- Accountability: You must be in position to figure out whether there are the different mechanisms in place to get accountability from the board or any other person in the management. Who is this member of the board accountable to, to whom so they report among others? Usually the shareholders of the company need to know the activities and success of the business/ company. In this case the board of directors must report to the shareholders and the owners of the company.
- Efficiency and effectiveness. What structures are there that bring in the desired efficiency and effectiveness of the management and the board of directors. The system should be clear enough for the structures. In other words, as far as the board of directors is concerned is there a mechanism that allows them to show their contribution and value to the company and business.
- Probity and integrity. Are they thinking or do the board think about the integrity of the company and business? Do the people you have brought on board have integrity, are they people of integrity, or they actually don’t care about that in their business dealings. What kind of message are they sending to the stake holders of the company and business in as far as integrity is concerned?
- Responsibility. Do the board of directors know their roles on the company structures? Do they know and understand fully their responsibilities and do they execute them? Are there clear segments of their powers and what they ought to do or not do clear to all the members of the board? Sometimes you find a board member seeking to involve himself in managerial duties and activities to the extent of asking for an office to sit in. what do they be micro managing? So it all goes down to whether or not they know their roles and responsibilities.
- Transparency. are they transparent in their duties and roles or they are the kind that wants to look for shady dealings within the company.
Factors you need to be looking out for in your relationship with the board of directors if you are to achieve sustainability of your business.
- Is the board of directors acting or exercising its duties in the best interests of the company, through exercising focused intelligence with discipline, loyalty and integrity?
- Do the board members elected or selected meet the eligibility criteria? Or they simply made their way up to the board through relatives and connections with the company owners. With eligibility look out for their qualifications, experience levels among others. Do they meet or they don’t?
- Adherence to the constitution and governance procedures, if the members of the board don’t do adhere to the company constitution and governance policies then your company is about to collapse.
- Having an inclusive approach to governance, especially one that recognizes and protects that rights of the members and stakeholders. Do the members of the board feel like their rights are protected, they are part of the whole company? If they don’t then you may not get the best out of them. they will always take your company as a side hustle.
- Do members of the board commit to ethical, professional, and lawful conduct. They must commit to be ethical and professional in their duties and services in the company. For example, its unethical to recruit one’s own family members as board or even staff of the company, a board member should not involve in recruitment procedure in the first place because its unethical.
- Avoid conflict of interest in relation to their fiduciary responsibilities. Members of the board should never put themselves in a compromising situation that could then lead to conflicts of interest.
Where you can avoid these then you and your company is of the right path.
SINS OF THE BOARD OF DIRECTORS.
A sin is any action, or in actions that goes against the standard board principles, ethics and laws which cause undesirable impact on the company in its goals of achieving the company goal. Just like sin in the bible, there are sins of the board of director’s somethings they ought and ought not to do.
- BOARD MEMBERS ARE RECRUITED BY THE CEO.
- Usually the person that recruits, gets to have the recruited pay allegiance to him/her and represent their interests. And yet the board members are to represent the interests of the owners or shareholders of the company or organization. Unless the CEO occupies two positons that is the board member as the founder and the CEO of the company.
HOW TO OVER COME THIS
- Ensure that recruitment procedures are well defined and the CEO is well defined in it, in as far as his roles and duty is.
- Board members should never promise to be loyal to the CEO, unless he is among the owners of the company.
- CEOS must desist from getting overly involved in the recruitment of the members of the board of directors for the one reason that as a CEO, you need someone who shall ask you the tough questions with an aim of pushing your business or company to the next level. For the sole reason of checks and balances in the company management.
- LACK OF DIVERSITY, and this is represented in the following ways.
- There is a prevalence of gender issues and representations
- Demographical changes such as age of the board members and the advantages of different age in the company discussions. You don’t want to have only old men and women on your board or only young men, youths.
- Most board are full of old people of about 60 -70years, the problem with them is that they have low willingness to take risks, they are the kind who are there to get their money and pass time.
- Watch out for having people on your board with similar backgrounds and experience in the sector. At the end of the day they wouldn’t give you much value as there is no aspect of diversity.
How to overcome this.
- While hiring consider difference in the experience and sector skill set, especially those needed for the diverse business operations. And define it from the word go.
- Look at the creativity of the members. With different people comes different perspectives and this shall indeed help in making the best decisions.
- Consider the background of the members of the board. Its important to know how and where his or her history was written from, his or her reputation and academic qualifications and skill set.
- Consider the age demographics. Do not insist on having only the old people on your board but mix them up. Have a number of old and mature guys on the board as well as the youth. as a general figure some people prefer between 40 -60 years on board membership. Remember the younger the board the more curious and creative they become. You will want a board that is so curious about the changing and dynamic business environment.
- A WEAK BOARD CHAIRPERSON. It is awfully bad to have a weak board chairperson. He is the start of your business collapse. How do you get to know you have a weak board chair person?
- He/she doesn’t mentor the CEO/ED, does not support the CEO/ED,
- Entertains rumors and gets information from other staff as opposed from the CEO/ED
- Doesn’t take charge of board meetings to be productive.
- Doesn’t work with the CEO or other board members in the process of effective board functions.
How to overcome this.
- Set ground rules that are to be followed by the members of the company.
- Work with others to set the board agenda and also on the quality of information shared.
- He is definitely responsible for ensuring all board members become exceptional in their roles.
- You should therefore avoid being in the spot light every time. And let the management do their job. For example, involving in training capacity building. (that is the role of management)
- OVERCONFIDENCE IN MANAGEMENT. Have you been in a situation where you are trying to give detailed information to a boss or even a director and all they want to here is where do I sign? and they be like “yeah, you guys can handle that, you guys are good at this I know etc.” as a board member or CEO you must keep track of everything to the detail. You don’t let go of your guard.
- Such people do not scrutinize the work of management, so they end up accepting reports are they are presented to them without digging deeper into the facts. In that case the management can paint a god picture of the organization and yet in actual sense it’s a lie.
- Loss of the sense of independent judgement.
- Some receive information on the day of the meeting. Truly you cannot expect a lot of output from such a person.
How to overcome.
- Make sure and monitor the conversations between the board members and the senior management team.
- Have the courage to ask tough questions and make appropriate inquiries as deemed necessary.
- Make timely objective evaluations of the members of the senior management team. In this very line try to obtain informal unbiased information from third party evaluations and opinions as well.
- Seek a deeper relationship with members of the senior management team to beyond the board room.
- Don’t take every single fact told to you as the golden truth, nothing else but the truth, for everything you are told is not true, try to further the validation of the facts.
- A MEMBER ON TOO MANY BOARDS. As startups we must look out for figures that have a good reputation to join our board of directors, however, some of them are involved and are members of too many boards, this may limit their efficiency.
- They stand at risk of conflict of interest and thus compromise the decision making process.
- They will miss meetings and participate less in meetings they have attended. Most of the times they have something more important at stake.
- They are therefore never able to read all the emails and paper work that is sent t them in preparations for a meeting. This in a way affects diversity, growth and mentorship by the member and to one another and to the CEO.
- Their interest may be quite un aligned to those of the company i.e., material gains from these boards.
How to overcome this.
- Set a criterion to have the board of directors, and make it clear that they should not have or be in more than three (3) other boards at recruitment. Besides that, always keep track of their involvement with other board.
- Set up proper rules of engagement of the members of the board of director’s activities and their implementation is crucial.
- Members need to set the criteria especially the number of boards to be members on in order to avoid damaging their reputation.
- CONFLICT OF INTEREST. Conflict of interest makes the board/ board member toothless, so much so that they cannot manage and make decisions on their own. How do you know there is a conflict in interest in your members of the board?
- They will withhold information especially when they are the source or receiver of the information.
- They will tend to manipulate the members on the committee
- They may have unhealthy relations with staff of the company, which relations are undeclared.
- They are usually involved in dubious dealings for example have the company recruit their relatives and friends among others.
How to overcome.
- Avoid situations that exposes you (board) to the executive influence to maintain your independence.
- As the CEO, Strengthen the board committees where board issues are discussed and sorted from which recommendations are then absorbed fully.
- Coopt other relevant independent experts on the relevant committees of the board. These will often do their job objectively advising you and providing you with the facts.
- Have an advisory board or a shadow board to discuss the company issues. They advise and it’s the board t either take up their advice or not when it comes to decision making.
If you can overcome all these we have talked about above, then your company and business is in the right direction.
Question when is the right time to institute the board of directors?
We mentioned in the previous session that for startups its better at the moment to have board of advisors, relate with them and build rapport. It’s very important.
Question. Is there a limit to the number of board of directors?
Well to a company it’s good to have a small number of board of directors. The reason lies in the ability to make decisions faster. The fewer the board members the easier and faster the decision making. The larger the number the more the lengthy the process becomes. At least have a number that goes between 6-7 board members.
Question how does one legally come up with a board of directors?
It’s a statutory requirement for every business that is opening or starting to have a board of directors, however, sometimes you do it early because you want to be in a better position to have funding from donors.
Question what measures can you take up if they are the major funders in the company?
If am the CEO and founder of the company, I would like to let some of the responsibilities off my shoulder in order to have the company move forward. In other words, for the betterment of the company then you have to choose whether to be this or the other but not both.
Does sole proprietorship also require a board of directors? still related to startups I would advise that having a board of advisors is good enough for sole proprietorship. How long should you change the board? It can be at least 3 years. Some people have their term up to 6 years. But the whole idea is to have new faces and experience in the company.