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<br>Listers<div><br></div><div>After the drama by the NHIF board on television, this story has relevance 8 years later. </div><div><br></div><div>Rgds</div><div>GG<br><div><div id="SkyDrivePlaceholder"></div><div id="ecxcontent_box"><div id="ecxcontent" class="ecxhfeed"><div class="ecxpost-259 ecxpost ecxtype-post ecxstatus-publish
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<h1 class="ecxentry-title"><a class="ecxmoz-txt-link-freetext" href="http://www.sunwords.com/2004/03/01/the-real-challenge-of-corporate-governance-reinvent-the-board-of-directors/" target="_blank">http://www.sunwords.com/2004/03/01/the-real-challenge-of-corporate-governance-reinvent-the-board-of-directors/</a><br>
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<h1 class="ecxentry-title">The real challenge of corporate
governance: reinvent the board of directors!</h1>
<p class="ecxheadline_meta">by <span class="ecxauthor ecxvcard ecxfn">Sunny
Bindra</span> on <abbr class="ecxpublished" title="2004-03-01">March 1, 2004</abbr> � <span><a href="http://www.sunwords.com/2004/03/01/the-real-challenge-of-corporate-governance-reinvent-the-board-of-directors/#comments" rel="nofollow" target="_blank">1 comment</a></span></p>
<p class="ecxheadline_meta">in <span><a href="http://www.sunwords.com/category/east-african/" title="View all posts in The East African" rel="category tag" target="_blank">The East African</a></span></p>
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<em><strong>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.</strong></em><BR>
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.<BR>
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.<BR>
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.<BR>
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.<BR>
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.<BR>
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.<BR>
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. <BR>
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.<BR>
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.<BR>
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.<BR>
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.<BR>
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.<BR>
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.<BR>
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.<BR>
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.<BR>
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.<BR>
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.<BR>
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.<BR>
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