[kictanet] The real challenge of corporate governance: reinvent the board of directors!

Fri May 4 10:02:20 EAT 2012

Even away from the NHIF, i can think of at least one listed company with a
figurehead chairman who turns up once a year, he is British, A powerful
Deputy Chair that everyone calls Chairman, who is also CEO  and a retinue
of directors, three independent who then fill in evey committee that teh
guy convenes, yes and morale at that company is very low.

On Fri, May 4, 2012 at 4:32 AM, Grace Githaiga <ggithaiga at hotmail.com>wrote:

>
> Listers
>
> After the drama by the NHIF board on television, this story has relevance
> 8 years later.
>
> Rgds
> GG
>
>
>
> http://www.sunwords.com/2004/03/01/the-real-challenge-of-corporate-governance-reinvent-the-board-of-directors/
>
>  The real challenge of corporate governance: reinvent the board of
> directors!
>
> by Sunny Bindra on March 1, 2004 · 1 comment<http://www.sunwords.com/2004/03/01/the-real-challenge-of-corporate-governance-reinvent-the-board-of-directors/#comments>
>
> in The East African <http://www.sunwords.com/category/east-african/>
>     Share<http://www.facebook.com/sharer.php?u=http://www.sunwords.com/2004/03/01/the-real-challenge-of-corporate-governance-reinvent-the-board-of-directors/&t=The%20real%20challenge%20of%20corporate%20governance:%20reinvent%20the%20board%20of%20directors%21%20%E2%80%94%20Sunwords.com%20by%20Sunny%20Bindra&src=sp>
> inShare
>  *The EastAfrican announces a new management series by Sunny Bindra
> focusing on the key strategic issues facing senior executives in the region
> today. We start with the first part of a challenging look at a hallowed
> institution: the board of directors.*
> The corporate board is on fire. Across the world, boards are under
> unprecedented pressure. Directors of listed companies are wilting under the
> glare of the spotlight of unrelenting public scrutiny. And many business
> thinkers now believe that this will be the decade in which we dramatically
> redesign the entire concept of the board of directors.
> That is entirely as it should be. The venerable institution called the
> board of directors has, in essence, remained unchanged for many decades.
> During this period, the business world has undergone dramatic upheavals.
> Information and communications technology has transformed the way business
> is done the world over. Globalisation has provided a quantum leap in the
> scale of operations of many corporations – whilst simultaneously opening
> them up to ferocious competition. Customers have used this new freeing of
> markets and the remarkable array of consumer technology now available to
> them to tremendous effect: to demand – and get – unprecedented choice and
> value for money.
> In response to this wave of unparalleled change, businesses have had to
> uproot their deepest structures. Organisational design has moved away from
> functional ‘silos’ to customer-facing processes. Companies have learned to
> define their ‘core competencies’ and narrow the scope of operations to
> doing that which they do unambiguously well – and outsourcing the rest.
> Information technology has penetrated every facet of the modern
> corporation. Reward and incentive systems have been transformed as the
> importance of attracting and retaining the best human talent is recognised
> in company after company.
> Yet the governance mechanism sitting right at the top of the corporation –
> the board of directors – has managed, by and large, to emerge unscathed
> from this turmoil. The structure is unchanged: a chairman and a dozen or so
> directors, some of whom are executives and others outsiders. Board
> composition is pretty much standard: retired (and tired) CEOs, politicians
> and professionals, mostly male. And board processes – how the board’s work
> is done – are largely as they were: quarterly meetings, following a rigid
> agenda; information provided by management in standard, predictable
> formats; a stage-managed annual general meeting where shareholders are
> wined and dined and thrown dividends.
> Is it really any surprise that this institution is in crisis? Where
> management teams have had to learn to be agile and nimble, boards have
> managed to remain slow and unwieldy. Where managers are being forced to
> rethink the fundamentals of their businesses every two years or so, board
> directors remain steeped in tradition and the business lore of yesteryear.
> Where managers rely on information that changes daily on the computer
> screens at their desks, directors receive carefully vetted, sturdily bound
> board papers that they have neither the time nor the inclination to peruse
> in any depth.
> This was a fire waiting to be lit. And once the first spark came, the
> flames exploded and spread right across the globe. We have seen a seemingly
> endless train of corporate scandals: from Enron, Tyco and WorldCom in the
> USA, to Marconi and Parmalat in Europe, and to the woes of HIH Insurance,
> Australia’s biggest insurer. Every time, the same message is rammed home:
> traditionally constituted boards of directors can do very little to prevent
> massive failures in management and ethics from taking place beneath their
> very feet.
> As billions of dollars of shareholders’ funds and employees’ dues have
> gone up in smoke, the reaction worldwide has undoubtedly been swift and
> emphatic. Presidents of nations have intervened, and committees and task
> forces have been convened. Grey heads have been asked to look at the
> failure in governance and recommend a way forward. And an apparently
> inexhaustible procession of codes of practice has emerged. Many years of
> weighty discussions and many acres of rainforest later, a consensus appears
> to be emerging with regard to ‘best practice’ in corporate governance.
> These things are good: a majority of ‘independent’ directors and an
> ever-tighter definition of ‘independence’; a separation of the roles of the
> CEO and chairman of the board; three core committees (audit, compensation
> and governance), all consisting of independent directors; board approval of
> company strategy; formal board evaluation of CEO performance; and, of
> course, handsome remuneration for directors for engaging in these arduous
> activities.
> These things are bad: an overly powerful CEO who has other directors in
> his thrall; non-executive directors with powerful incentives to influence
> board decisions in their own financial interest; large boards with
> unnecessary directors entrenched by history; boards that talk too much;
> boards that talk too little.
> So, out of the ferment of recent years, a consensus of sorts is forming.
> At its core are a couple of basic propositions: that boards need to be
> empowered to act on behalf of shareholders; and that board incentives need
> to be aligned with those of shareholders. The best way to achieve this, so
> the consensus thinking goes, is to ensure that board control is in the
> hands of directors who are independent of management. In short, the focus
> is on protecting shareholders from the nefarious designs of managers. And
> companies are at present falling over themselves to demonstrate their
> willingness to adopt these best-practice codes.
> Where are we in East Africa in this whole debate? Let us start by being
> quite frank: what does a position as a director in many of the region’s
> leading corporations entail? Firstly, one is generally invited to the board
> by one’s friends and allies in the corporate world, usually to join a
> particular political camp in that board. Secondly, one often actively seeks
> conflicts of interest: if one is a professional, one tries to sell one’s
> services to the company; if one is a politician, one marshals the company’s
> resources for personal use, particularly at election time. Thirdly, one
> really expects to have very little to do as a board member: a few tedious
> meetings every year followed by a sumptuous lunch; a board retreat or two
> at a beach hotel or 5-star lodge; a generally uneventful AGM where an
> occasionally troublesome shareholder livens up proceedings.
> Traditionally, local directors in eminent boards tend to be drawn from one
> of two sources. First, from the pool of retired CEOs who made their
> reputations in the boom years of the 1970s and 1980s (in Kenya at least),
> and who bring grey hairs, a certain fame and a stack of business stories
> from the monopolies of yesteryear to the table. Second, from the pool of
> politicians and political operatives who bring the possibility of putting
> the company on the inside track with regard to lucrative government
> procurement, or who can pick up the telephone to smooth out tricky problems
> that the company might face from time to time.
> I am generalising deliberately. Of course there are companies that are
> very competently governed, and directors who provide wise independent
> counsel through good times and bad. But there are very few. By and large,
> we are retaining structures that are totally irrelevant to the demands of
> the 21st century. We are appointing individuals that at best are invisible
> and at worst are subtracting value from the corporation. And we are stuck
> with information processes with that leave directors completely in the dark
> as to what is really happening within the company.
> In East Africa, executives are used to whining about the state of the
> region’s infrastructure, about what additional costs are imposed by
> insecurity and corruption, about the inconsistencies of fiscal and monetary
> policy. We are less used to taking a hard and honest look at the very
> structures and systems by which we manage and govern ourselves. If we start
> at the very top, we will see that the role and operation of the board of
> directors itself needs a fundamental overhaul.
> East African companies come in all shapes and sizes, from the large
> multinational to the small, rapidly growing trading companies located in
> the back streets of Nairobi, Kampala and Dar-es-Salaam. Good corporate
> governance is necessary in all of them. The interests of minority
> shareholders must be protected at all times, even in small family-owned
> companies. Society, too, increasingly expects responsible behaviour from
> all corporate entities. Not-for-profit organisations like schools,
> hospitals and NGOs must also account for themselves in a professional
> manner. No organisation is exempt from the need to take governance to a
> different level.
> Given that we are starting from farther back than the rest of the world,
> adopting the best-practice codes of conduct that are sweeping through
> boards everywhere would be no bad thing. We certainly need to protect
> shareholders from managers who have consistently and systematically denuded
> them. We certainly need to embed the idea of the independent director, in a
> corporate culture that has yet to grasp its import. And we certainly need
> to limit the often-ridiculous powers we grant to our chief executives.
> Yet the opportunity is far greater. We would limit ourselves severely if
> we went for wholesale adoption of codes of practice and then settled back
> to our cigars and brandies, our work done. The true frontier of change in
> corporate governance is elsewhere. The most enlightened corporations are
> looking far beyond best practice. They are looking at a fundamental
> redesign of the board of directors from first principles, a complete
> overhaul of structure, composition and processes.
> That is where leading East African corporations must settle their gaze.
> For a tour of what the reinvented board of directors might look like, see
> you here next week.
>
> --
>
>
>
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-- 
*
Warm Regards,

PETER WAKABA
AFRICA BUSINESS EDITOR
CCTV AFRICA

Every morning in Africa, a gazelle wakes up, It knows it must run faster
than the fastest lion or it will be killed. Every morning a lion wakes up,
it knows it must outrun the slowest gazelle or it will starve to death. It
doesn't matter whether you are a gazelle or a lion. When the sun comes up,
you better start running.
- In "The World is Flat" by Thomas L. Friedman*
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