Evolving Expectations of Board Members: Why and what do you need to know?
In an increasingly difficult environment, the emphasis has been growing, in recent years, on having Boards that are more competent and professional. Indeed, the tasks of Board members are becoming more diverse, necessitating that the members themselves demonstrate competency at several levels, in several areas of corporate expertise. It’s not just tightening regulations that are requiring these; it’s the lessons from Board failures in the last few decades that have made shareholders sit up and take notice of how their investments are being managed, and other stakeholders who are demanding higher standards of integrity from the people entrusted with running organisations which depend on the support of the greater community for their survival.
Today, Board members no longer have time to warm their chairs; they are thrown into the deep end and expected to perform, with no respite from the terrifying glare of public scrutiny. This has made it necessary for expanded effort from the Board to cultivate better relationships with management, first and foremost, while exerting greater oversight of management’s performance. This entails walking the very fine line between allowing management the leeway to do what needs to be done where the running of the company is concerned, and recognising when interventions must be made. The line isn’t always clear; Boards have to be careful where they tread, or they may find themselves dealing with mutiny.
The ultimate responsibility for a company rests with its Board but Board members cannot be hands-on with it the way management can, mainly because they cannot be constantly present the way management is and because of the nature of their oversight responsibilities. Hence, Boards today need to be more involved with risk management from the outset, to ensure that management operates the way it is supposed to.
With the push to exhibit more responsibility and better insight, what should Board members do, besides ensuring they have what it takes to hold those positions? One way is to be more informed, and for that, they will need to have access to channels of the correct information. They will also need to be focused and be able to prioritise the needs of the organisation correctly, and align these with the prevailing sentiments of the external environment. Where before they were only required to see that the organisation ticked the boxes as dictated by rules and regulations, they now have to rethink the way the company is run because they are today being increasingly held to higher levels of accountability.
The strident calls for corporate transparency and public accountability will not diminish anytime soon. In tandem with this, risks to the business increase every day, necessitating constant strategic adjustments, and even tighter oversight on the part of the Board. They will find that they have no choice but to be “hands-on” because the business environment is increasingly dynamic, and changes have never happened faster than they do now. Precise information is therefore imperative to the decision-making process; Board members must be able to distinguish what they can and cannot use. What used to be a given before, now needs a closer look and more stringent vetting.
Part of this accountability also requires Boards to be able to identify emerging risks, and strategise for their effective mitigation. This can only be done if members themselves are proactive about obtaining information, and do not rely exclusively on input from management. The formulation of corporate strategy must include anticipating future risks, and how these can be mitigated – this is a part of risk management that the Board must work on together with management so that the organisation’s vulnerabilities and opportunities can be correctly identified and assessed before an event occurs. While the mitigative action subsequently developed may not fully resolve potential issues, at least the event will not be totally unanticipated.
Greater accountability also implies greater scrutiny; this is increasingly extending to the personal integrity of Board members, who are expected to be examples for the organisation’s employees to follow. By their behaviour, they have to enforce the idea that corruption and misconduct will not be tolerated regardless of the level at which it occurs. Setting the appropriate tone at the top as the yardstick for the rest of the company to emulate is now, more than any other time, seen as the purview of the Board – and Board members can be held accountable for any breaches, jointly and severally.
There is increased scrutiny of members’ compensation as well; they cannot be seen as taking advantage of their position in any way, including in all transactions undertaken by the organisation. While the Board is not expected to be hands-on to the extent of overseeing daily operations, it is nevertheless regarded as its role to ensure that management’s performance is consistent with the firm’s policies and strategies. Overall, the work of the Board has become more intense, in recognition of the far-reaching consequences of well-developed, well-executed strategies that it is responsible for. It is no longer enough to merely occupy a comfortable position; members have to prove, constantly, that they are worthy of it.