In this picture from left to right: Prof Marc le Menestel, visiting professor of Ethics at INSEAD Business School and co-director of the programme, Di Radley, Old Mutual Investment Group CEO (who completed the 2015 programme), Dr Lulu Gwagwa, CEO of Lereko Investments Limited (delegate attending programme) and Prof Arnold Smit, (Head of Social Impact and associate Professor of Business in Society at USB, is the director and overall facilitator of the programme).
Lobbying by company management of its board members before a board meeting is the single most negative trend to have emerged from South African boards in recent times and should be banned given it is toxic for good corporate governance.
This is according to Old Mutual Investment Group CEO, Diane Radley, speaking to a group of participants as a guest speaker at the second module of the Africa Directors Programme (ADP) in Stellenbosch recently.
Old Mutual Investment Group is the corporate partner of the ADP programme, which also sees the involvement of the esteemed INSEAD Corporate Governance Initiative with its world renowned International Directors Programme and the USB Centre for Corporate Governance in Africa.
Radley believes that this kind of management lobbying comes down to a “divide and conquer” approach to a board of directors. If a board cannot collectively debate an issue and come up with a solution that is correct for the business, that board should not be in place, she says.
She adds that the board’s role of oversight and governance is of critical importance. Management’s role of execution in partnership with the board is just as important. “Unfortunately there is a level of greyness between these two areas.”
If a board member makes an individual decision, then he or she is not acting as a board. The directors of a company should make decisions collectively. Individual decision making is for the executive manager that has individual accountability and responsibility in the business.
“This provide us with a way to distinguish between the decisions of a board acting like a board of directors and an executive who manages and leads the company.”
When dealing with tension between boards and company management, Radley explains that firstly, this comes down to governance on the one hand and management on the other. “Boards sometimes lose sight of their governance role and get caught up in the detail of the business. Board members should still make sure that they can see the wood from the trees in a business,” she says.
Secondly, Radley points out that executives sometimes view detailed questions and requests for information by the board as signs of distrust. The relationship between a board and management can break down when there is sentiment that the board is doing management’s job.
Lastly, board members should be familiar with the company and the industry they serve. Here it must be accepted that a board meeting is not a ‘destination’, but ‘various stops on a journey’ alongside the executive or CEO. If board members do not know the company, management could view the asking of questions as ‘shooting from the hip’.
“Board members must add value to the company, and if not they end up making the wrong decisions,” Says Radley
To address any tension, the executive should prioritise helping board members keep their focus on oversight and governance and keep them continually updated on strategy and the progress being made, as well as decisions and the implementation of these decisions.
Radley believes that trust and transparency are paramount in the relationship between boards and executives. “Honesty and a clear view of problem areas, as well as the successes achieved, are key to the successful relationship between the two,” she says. “A lot of conflict arises from management misleading a board.”
Radley also highlights the critical role that the chairman plays in managing the board and remaining impartial on internal company business. “A strong chairman is absolutely crucial in dealing with behaviour issues, politics and tactics. A lot is required to make a board functional.
“The chairman should also be there for the CEO to bounce issues off, but the CEO remains the one to make decisions on the company’s internal business,” she said.
Prof Arnold Smit, the programme director on USB-ED’s behalf, said: “It was good for participants on the Africa Directors Programme to gain insight into the board –executive relationship from a CEO who is experienced in both roles. The distinction between direction and execution should be well understood by both directors and managers.”