3 critical challenges facing South African directors
Wednesday, 12 August 2015
Recent boardroom dramas
reveal some common issues with which directors need to come to grips.
By Sikkie Kajee CD(SA), facilitator at the Institute of
Directors in Southern Africa (IoDSA)
A recent training session I conducted at the
IoDSA highlighted a few common issues that seem to be causing boards a lot of
problems. During the session, we looked at five companies that had or are still
undergoing some turbulence, in order to learn from their experiences.
While each one of them obviously had their own
specific dynamics and personalities, it became fairly easy to discern some
common challenges that the boards of these respective companies faced. I would
like to highlight three such challenges in this article because, in my
experience, they are particularly relevant to South African boardrooms.
The need for courage.
The IoDSA has been highlighting the need for
corporate leaders to be courageous for some years now. But the notion of what
kind of courage directors need to show is more nuanced than one might expect.
The obvious requirement is for directors to ask the hard questions, not to be
afraid of ruffling feathers and to be prepared to put forward a view that they
believe to be in the best long-term interests of the company. Very often, this
could mean advocating decisions that make the company money or provide advantage
in the short term but potentially compromise its future.
This kind of courage must be exercised within the
framework of the collective, and this is not always an easy balance to strike.
There is tremendous pressure to go with the group, especially as a divided
board is never a good thing for the company.
Here’s where the second kind of courage comes in,
call it "the courage to be independent”. It comes with none of the drama
associated with the courage outlined above. I am talking here about the courage
to do your own thinking, to give the company the benefit of your thought
processes. This is probably what the overworked phrase "exercising his or her
mind” really means. It depends on retaining true intellectual independence,
examining the board packs critically, and resisting the temptation to be swept
along by the accepted narrative or status quo.
Humans are storytellers by nature, and everything
we say or do advances a particular story, or view of reality. For a director,
the courage to be independent is to remember, at all times, never to surrender
to the dominant narrative, be it around the boardroom table or more generally.
Striking the right balance
It was clear from the various cases studies that
there needs to be a correct power relationship between several of the governance
role-players. The first, and this is particularly evident in the public sector,
is between shareholder and board. The State, as sole shareholder, often compromises
board performance and effectiveness by making appointments based on political
considerations rather than skill, experience and probity; some of our
parastatals are hamstrung by ineffective boards whose members do not
necessarily have the skills to direct and oversee massive enterprises, and who
are potentially distracted by political wrangling. In particular, when the
shareholder appoints members of the executive team, their loyalties are
This overreach by a powerful shareholder can also
be a factor in the private sector.
Another potential imbalance of power can occur
when a Chairman is able to dominate the board, effectively shutting down all
voices of dissent. This is a particular challenge when a charismatic, respected
company founder takes on the chairmanship late in life. One of the case studies
also highlighted the way in which a powerful CEO can unduly influence the
board, at least for a time.
Indeed, CEO-Board conflict is a hallmark of
several of the case studies. Finding the right Chairman is absolutely critical.
Appointing directors of
the right quality.
Ultimately, of course, it all comes down to the
skills, professional and personal, that directors bring to the table.
Establishing what skills a director actually has, and how committed he or she
is to ethical action, is something that is hard to ascertain in an interview.
This is why the IoDSA is putting so much effort behind independent facilitation
of board appraisals and the establishment of a formal designation for directors,
the Chartered Director(SA), or CD(SA) designation. By professionalising the boardroom
role, the IoDSA is enabling the skills of directors to be evaluated objectively
and expertly, as well as providing ways for directors to expand and update
their skills through director development and other initiatives.
Even more importantly, becoming a CD(SA) would
entail formal acceptance of a professional code of ethics and disciplinary code
as well as the ability to revoke the designation under certain circumstances.
In conclusion, there is no doubt that directors
face numerous challenges when it comes doing their jobs. At the same time,
though, just understanding what the challenges entail can be half the battle