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Board functions

Governing Body’s Corporate Functions

The Governing Body has a critical function as the focal point for corporate governance. The Board is responsible for the results expected out of an effectively functioning corporate governance system.  They are responsible for an ethical culture, good performance of the organization, effective control and legitimacy. The Board cannot pass the buck to management. The GB is also responsible for setting up committees to ensure effective supervisory role of the Body but it will remain accountable and responsible for all the functions that it delegates to those committees. So a governing body member cannot assume that they are safe simply because they delegated. They still have to exercise their minds on recommendations brought by the committees. The GB does not simply rubber stamp the recommendations of the committees. That is why there should be sufficient numbers of the governing body outside the committee to be able to interrogate and approve the recommendations of the committees. For example at some point I sat on a Board which had the majority of the governing body members being part of the audit committee. The result was that only two members of the Board were not on that committee, so the decisions of the audit committee when brought to te Board were difficult to engage robustly because the majority already had passed them. Thankfully after a Board evaluation, this process was corrected.

The Governing Body is responsible to set the vision and culture within the organization. It carefully considers the direction that the organization will take, the industries and the business model. It is also responsible to ensure a culture that enables the vision.

The Board is responsible for approving the strategy, policy and business planning. The Body must take seriously the interrogation of the strategy being presented. I remember as a Board member being part of a 5 year strategy planning session weekend. After the two days of presentations with minimal engagement form the Board, we were done. As the convener moved to close the meeting, I inquired as to the process of strategy approval. The convener who was an executive in the organization indicated that the strategy would be deemed approved since the governing body members were part of the strategy session. At that stage I moved to oppose the approval of the strategy. The organization was in the process of a major acquisition that would change the whole trajectory of the business and yet throughout the strategy making process there was no mention of this transaction and its impact on the organization. I argued that the management was taking the Board for granted and so were doing the strategy just for compliance sine the default strategy on the ground would be completely different. In my view this strategy was a misrepresentation of the actual reality on the ground. There was shock in the meeting as all eyes turned to the executive chairman who had sat quietly through the meeting. After an awkward moment the charismatic executive chair agreed with me and proposed that we reduce the strategy to a one year strategy reviewable within the year once the transaction goes through. My other objection was based on the view that being present in the strategy session does not take away the need for the GB to interrogate and approve the strategy.

The Governing Body is responsible for the appointment of the CEO who will be responsible for the appointment of the executive Team. It should remain clear that the CEO though a member of the GB is fully accountable for organizational performance to the GB. Some CEOs act as if they are primarily accountable to shareholders and not the GB. And some GB acquiesces to this. The Governing Body should also ensure that there is adequate succession planning within the organization.

At some point I served on a GB of an organization where the chair ran everything in the organization such that the CEO though competent could not do anything. The Chair should not usurp the role of the CEO. Sometimes this leads to a cold ear or even hot war between the two. These two roles are complementary even though the CEO reports to the Board. They should be cordial but frank discussions between the two.

The final function of the GB is to oversee the execution of the strategy and the policies in place. The GB should hold the CEO accountable for execution. Business succeeds on the basis of the discipline of execution. It is amazing that one often sees in the Board pack feedback that is vague and immeasurable. For example I have seen some Board packs where a matter remained on the pack for the whole year as pending. No one drove accountability for execution. This is a Board failure.

The Governing Body should execute its functions without fear or favor but with fairness.