Why board composition matters

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African Board Composition

Why board composition matters Ethical BoardroomBy Dr Nechi Ezeako, CEO at EL-Values Advisory

 

 

 

Executive directors not only have the right to speak and express their views at board meetings, but also the duty/responsibility to do so. While recognising the corporate governance concept of no one size fits all, most codes of corporate governance (CG) have highlighted the important issue of board composition. Indeed, corporate law across jurisdictions recognises board composition and highlights its structure. 

There has been increasing interest by Nigerian directors/members of governing bodies in corporate governance. However, it would appear that there is still some level of ‘check-box’ or regulatory compliance mindset to corporate governance. 

A proper understanding and imbibing of CG principles and recommended practices, as well as of their intrinsic purpose and value – including how these relate to the CG business case, the board’s role both collectively and individually – positions such boards to be value-adding entities, giving their organisations the competitive edge. But, despite the ostensible interest in corporate governance in Nigeria and Africa as a whole, there is the issue of cultural challenge to CG practices.

This article considers the impact of cultural nuances on board composition. It aims to throw light on the ‘whys’ of board composition to demonstrate the impact of local culture on key board functions and the importance of leveraging board composition for success.   

A review of corporate governance codes across continents and jurisdictions, including Nigeria, reveals the following key stakeholders for effective boards: the chairperson, managing director (CEO or MD/CEO), executive directors (EDs), non-executive directors (NEDs), independent non-executive directors (INEDs) and the company secretary.

The actual combination of these board participants differs from organisation to organisation, and from sector to sector. Codes encourage a flexible approach to the structure of the board, taking into account the peculiarities of the particular organisation and best practice standards, such as diversity (including gender), skills mix, etc.  

Effective Boards 

Principle one of the Nigerian Code of Corporate Governance 2018 (NCCG 2018) links successful companies not just to the presence of a board but also to board effectiveness. It states, inter alia, ‘a successful company is headed by an effective board.’ Principles three to eight specify the above-mentioned players and their respective roles in assuring board effectiveness. This article reviews how misconception of the chair and ED roles specifically limits the potential to fully leverage their presence. 

It was the late English businessman Sir John Harvey-Jones who stated: “If a company is successful, it is due to the efforts of everyone, but if it fails, it is due to the failure of the board. If the board fails, it is the responsibility of the chairman, notwithstanding the collective responsibility of everyone.”

“The mindset that old age confers unique wisdom, creates its own peculiar challenges. Where both age and position are combined in the same person, you have a monarchical rather than professional mindset.” 


I wholeheartedly agree with Sir John. Unfortunately, sometimes, the importance of the chair’s role in achieving board effectiveness is lost, even on the holder of the office. 

In Nigeria and Africa, there are cultural practices of ageism, which discriminate against the young in favour of the old and this extends to positions of influence. For example, where a choice of leader of the board is to be made, ageism leads to a tendency, to choose the oldest person in the room, rather than the most experienced or qualified. It could be argued that age confers some level of experience. However, experience needs to be relevant. 

This is the ‘respect’ factor and by the same token, board members are expected to show ‘respect’ by not expressing divergent views from the chair’s. When the ageism factor applies to both age seniority and leadership position, the issue is compounded. Culturally, a person who occupies a leadership position expects his views to be accepted, irrespective of the superiority of others’. 

The values-based pillars and principles of corporate governance align largely with Nigerian and African cultural values of integrity, hard work, honesty and respect, but their application is quite different. While governance principles recognise the concepts of personal responsibility, and therefore the importance of independence, ethics and tone at the top, the application of Nigerian and African cultural values recognises the leadership titles of Oba/Obi/Igwe/Emir, etc, on whom it places the monarchical headship. The mindset that old age confers unique wisdom, creates its own peculiar challenges. Where both age and position are combined in the same person, you have a monarchical rather than professional mindset.

Why board composition matters Ethical Boardroom

With this background, the Nigerian governance system has experienced not only the presence of some chairs who see their roles as superior to the board, but also directors who shy away from taking responsibility. Such chairmen often get away with overriding the board. Perhaps, due to the fact that historically, the monarch was deemed to be a deity and therefore could do no wrong, in a few instances, where some directors demonstrate their displeasure to the chair’s excesses by leaving the board, such directors are viewed as the ‘enemy’ or as ‘disrespectful’ to the chair by others lacking the courage to express their independence or gripped by a groupthink culture.

In reality, and despite the African culture as demonstrated by researchers, writers and respected boardroom practitioners, the corporate board chair is neither a monarch, whose every whim is to be followed without question nor a school headteacher who can dictate to his/her students what they must do with the ever-present threat of being whipped into shape. They are not an all-knowing deity. Rather, the chair is first among equals who has the responsibility to facilitate the board’s meetings in such a manner as to bring out the best from each member, thereby enhancing the board’s effectiveness. Being chair involves a high level of maturity and ability to acknowledge and respect views, different from one’s own. Furthermore, a good chair, should encourage dissent. 

Researchers and board practitioners alike have highlighted the dangers inherent in chair excesses. From Ram Charan’s Boards That Deliver, Jeffrey Sonnenfeld’s What Makes Great Boards Great, Stanislav Shekshnia’s How To Be A Good Board Chair, to the personal experiences of veteran boardroom gurus and respected chairs like the late Sir Remi Omotosho and Sir John Harvey-Jones, it’s clear that the chair has a significant role to play. The right attitude to that role could be the difference between success and failure of the board and, therefore, the company.

Thus, the effective board chair is a facilitator not a commander, an enabler not a bulldozer, and recognises the difference between his/her role as a board leader and that of the CEO. The chair is able to positively harness the extensive experience in the boardroom to the organisation’s advantage. According to Sir Remi Omotosho, a good chair builds synergy and cohesion and does not dominate the board.

Executive Directors

Research has shown that, in their bid to be effective and add value to their organisations, NEDs/boards stand to benefit significantly from the presence of objective and independent-minded executives. In Nigeria, it is often the self-same NEDs/boards that discourage independence of EDs, as distinct from the MD/CEO. 

Many an ED in this jurisdiction has experience of chairs/NEDs/boards shutting them down and rejecting their contributions at board meetings. These chairs/NEDs/boards perceive contributions from the executives as danger signals of lack of unity within the management. To their mind, discouraging executives from speaking at board meetings and insisting on hearing only from the CEO, except in instances where the latter permits executives to speak, establishes the authority of the CEO. Here again, the culture of ageism, recognising the CEO over the EDs, comes into play.

Why board composition matters Ethical Boardroom

This stance, however, is not supported by Nigerian law, both statutory and precedent. The Companies and Allied Matters Act (CAMA) recognises directors, including executive directors as persons duly appointed to direct and manage the company. Furthermore, the Supreme Court of Nigeria, in the case of Longe vs First Bank of Nigeria held that there is no distinction between NEDs and EDs.

Legally, responsibilities, duties and liabilities flow to all directors, whether executives or non-executives. Thus, as stated above, EDs have both the right and the obligation/duty to enhance board effectiveness by making contributions at board/committee meetings. I attended a conference of the African Corporate Governance Network (ACGN) in Namibia, where veteran corporate governance expert and then chair of the King Committee on Corporate Governance, Sir Mervyn King, stated that the importance of having more than one executive on the board included the enhancement of the board’s access to independent information. I agree wholeheartedly with him. Not being involved in the day-to-day running of the business, NEDs and boards rely for the most part on information received from the management.

In practice, where the CEO is the only board member in the management, virtually every piece of information that the board receives is channelled through the ‘CEO funnel’. Given its oversight role over the CEO and his/her team, the board would be more effective, in my view, where it has access to more than one funnel of information and board members can, therefore, independently and confidently validate the information received from the CEO. This type of independent oversight creates room to build trust in the CEO, where trust is due. On the other hand, where it is not, the board is able to have timely information with which to act in the organisation’s interest. 

Surprisingly, the very same beneficiaries of the presence of other executives beyond the CEO on the board are sometimes the ones that short-change themselves of these benefits. Due to cost implications, some organisations do not have any executives as board members and stand to bear the risk of governance failure. In many instances, only the CEO is also a board member. 

In my view, full understanding and appreciation of the legal implications, helps any director, including executives, act in the company’s best interests. Where this is overlooked, it is detrimental to all board members, given the joint and several nature of directors’ liability. Unfortunately, boards that are able to appoint EDs sometimes take this action as a check-box activity in fulfilment of some regulatory or governance requirement, unconscious of the business case involved in the appointments of qualified persons as EDs. Therefore, these boards short-change themselves and their organisations by not leveraging fully on what these directors bring to the table. Usually, the focus is on their managerial capacity and contribution to the bottom line. In fact, as I’ve explained, EDs wear two caps; as managers in their day to day roles, and as directors in their board function. 

Organisations are best served where every structure is fully leveraged to give the best value. 

 

About The Author:

Dr Nechi Ezeako is a lawyer, chartered secretary and administrator, authorised board leadership corporate governance trainer, certified company secretary trainer, certified board evaluator and certified anti-corruption and ethics compliance trainer/consultant with over 30 years of diversified experience in the consulting, financial services, manufacturing, real estate, and not-for-profit sectors. She holds among others, a Master of Science (Distinction) degree in Corporate Governance from the Leeds Metropolitan (now Leeds Beckett) University, United Kingdom. In her current role as Principal Consultant/CEO, EL-Values Advisory and previous role, Executive Director, Institute of Directors, Nigeria and the Executive Director/CEO, IoD Centre for Corporate Governance, she has played key roles in training directors and C-suite executives of major corporations, SMEs, as well as public sector institutions on corporate governance issues.