Now having dispensed with those formalities let us continue looking at the definition.
“Corporate Governance -is the exercise of ethical and effective leadership by the governing body towards achievement of the following governance outcomes: ethical culture, good performance, effective control and legitimacy.” King IV Report.
The Governing Body is expected to exercise ethical and effective leadership.
Effective leadership is seen as leadership that adequately accomplishes the desired outcomes and performance with minimum expenditure of time, resources, waste and effort. A governing body has exercised effective leadership when it has achieved the strategic goals cost effectively, and timeously. That is why Boards are responsible and accountable for corporate performance. The governing Board is supposed to be results-driven. The organization has to create and maintain value to all stakeholders. It is the responsibility of the governing body to ensure that value is created and not destroyed through the policies and strategies that the organization adopts. We will take a closer look at Board responsibilities to the organization in a later blog.
I have observed that often Boards will take the credit for great performance and yet blame management for poor performance.
Leadership requires taking responsibility of both successes and failures.Tweet
Indeed there are management systems that try to frustrate the Board by giving it misleading information or through powerful CEO who intimidate the Board.
The fact is that a Board which has no control over the management is a poor and ineffective Board. It is used only to rubber stamp decisions made elsewhere.Tweet
I once sat on a Board of an NGO where management reported primarily to parallel internal Executive Committee structures led by the Group CEO. Because of those parallel and non accountable structures the Board could not assert its control, and direction on the management. This is very unwise because the legal liability rests with that Board. The net result was consistent strategy and financial underperformance. In hindsight the Board should have asserted itself or if it could not, it should have gracefully considered resigning. It is critical in corporate governance that the Board has effective control of the direction of the organization so that it is accountable for the organization.
Whenever you have one party being in control and another being accountable for what they do not control and direct, you have a recipe for corporate disaster.Tweet
Ethical leadership of the governing Board primarily implies that the governing Body is responsible for creating an atmosphere and culture within the organization that favors ethical behavior.
According to King IV ethical corporate leadership is characterized by integrity, competence, responsibility, accountability, fairness and transparency.
If there is rot in the organization that persists, the responsibility lies with the governing body. Full stop.Tweet
Most corporate governing bodies operate like some governments where one observes significant levels of corruption and yet the President makes noise about the corruption without holding the responsible ministers and technocrats to account. That is irresponsible.
One reason that governing bodies often wink at unethical behavior maybe that they are mesmerized by the supposedly good performance of executives or that they are too nice to hold people to account. I have discovered that one does not sit on a governing body for purposes of being liked. It’s not a beauty contest or popularity contest. A board member has a duty of care to the organization. If he proves negligent in this duty, he can attract criminal/civil censure.
While a governing body can delegate execution, it cannot relegate its responsibility or delegate its accountability.Tweet
We live in an era of radical transparency where any corporate mistake will be flighted on social media and the reputation of the organization destroyed within hours. It is therefore important for the governing body to be transparent and fair in its dealings with all stakeholders. There is also increased stakeholder activism to contend with.
Suffice to say that it is important that the governing body takes control of the ethical and effective leadership of the organizations. No excuses!Tweet