News & Press: IoDSA in the Press

Knowledge is power—and it’s also the mark of a good non-executive director

Tuesday, 04 August 2020   (3 Comments)
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By Parmi Natesan and Prieur du Plessis

Non-executive directors (NEDs) should be the first to recognise that yesterday’s skills and experience need continual supplementing to deal with today and tomorrow.

COVID-19 is teaching us many lessons, one of the most important of which is that our existing knowledge and experience are often inadequate in the face of the unexpected. For NEDs, who fulfil such an important leadership role on boards and governing bodies, keeping skills updated and acquiring new ones are not only a mark of excellence but also essential in discharging their duties.

The first thing NEDs need to learn is what their duties actually are. Once that’s clear, it’s equally important to ensure they have the skills to fulfil them. To risk stating the obvious, a NED’s probity and desire to help the organisation succeed are not enough ̶ they need to ensure they have the skills to make a difference in a rapidly changing world. Directors have to commit time and resources to make sure they keep up.

The King IV Report on Corporate Governance for South Africa 2016 makes this point very clearly in the Recommended Practices to achieve Principle 1: The governing body should lead ethically and effectively. Relating specifically to effectiveness, competence is one of the characteristics of a governing-body member. It outlines three elements:

i. Members of the governing body should take steps to ensure that they have sufficient working knowledge of the organisation, its industry, the triple context in which it operates, the capitals it uses and affects as well as of the key laws, rules, codes and standards applicable to the organisation.

ii. Members of the governing body must act with due care, skill and diligence, and take reasonably diligent steps to become informed about matters for decision.

iii. Members of the governing body should continuously develop their competence to lead effectively.

It’s also worth noting that NEDs don’t need to ensure they are competent just to discharge their fiduciary and other duties; they also need to be demonstrably competent in order to protect themselves. Members of governing bodies are increasingly being held accountable for their actions and their effect on the organisations they lead, and in the private sector can be held personally liable.

Competence is at a premium however you look at the topic.

What to focus on

Having accepted the link between their skills and their ability to deliver on their commitments as directors, NEDs need to give serious thought to the practicalities: What skills and how to obtain them.

One key area is obviously governance and law. NEDs need to have an excellent working knowledge of governance best practice as embodied in King IV and the various practice and guidance notes published by the Institute of Directors in South Africa (IoDSA). They will also need to be conversant with the Companies Act (71 of 2008) and any other applicable legislation.

Industry knowledge should be another key focus. NEDs need to understand the dynamics of the industry in which the organisation operates. It’s also essential that NEDs are well versed in the fundamentals and long-term strategy of the organisation, and how they interact with the industry and the economy as a whole.

McKinsey cites the case of a company that requires its directors to accompany staff on customer visits at least once a year. Other companies require them to visit production or R&D facilities annually. NEDs need to understand the business and its industry very well.

This point is worth stressing because the emphasis on NEDs’ independence can create the mistaken impression that they should not have an intimate knowledge of the organisation whose affairs they are employed to safeguard. Independence is an attitude, and should not preclude knowledge.

NEDs should also consider improving or gaining skills in a specialist business discipline such as strategy, finance, marketing, IT or production. There are arguably too many generalist NEDs, whereas business is increasingly reliant on highly specialised skills. To direct an organisation effectively, NEDs need the capacity to interrogate and assist those specialists.

IT, including digitalisation, artificial intelligence and cyber security, is a specialisation of particular importance given the continuing technological disruption characterising the modern world ̶ something COVID-19 appears to be accelerating.

It goes without saying that all NEDs need a certain level of numeracy because many board discussions hinge on financial matters.

When it comes to how these skills should be gained or maintained, there are many options open and the chair should provide guidance in this regard. The IoDSA has long advocated the need for directorship to be professionalised so that NEDs and other directors can ensure they are focusing on the right skills considering the rapidly changing business environment. The IoDSA’s certification programmes offer this framework within the context of continuing professional development; perhaps as important for directors in an increasingly litigious world, a professional certification also offers an objective method of demonstrating competence.



Parmi Natesan
Dr Prieur du Plessis

Parmi Natesan and Dr Prieur du Plessis are respectively CEO and facilitator of the Institute of Directors (IoDSA); email: info@boardgovernance.co.za

Comments...

Phumzile Mayaphi says...
Posted 5 hours ago
Hi all I am Pumzile Mayapi, a member of the IODSA in good standing.. Thanks for this this reflection. I am wizened up now. Firstly I agree fully with the old adage that knowledge is power. It is critical for NEDs should constantly capacitate themselves through the acquisition of requisite skills in order to contribute meaningfully towards addressing challenges facing the organization.
Brandon Johannes says...
Posted Friday, 28 August 2020
Hi, I am Brandon Johannes and I work for Kelp Product. I am still young in the role as a NED and still have a great deal to learn. I do agree knowledge is power, as do I also agree with Pako’s comment that through maturity and the right motive of leadership, knowledge is truly better acquired. Over the last year I did not fully understand my role as a NED. I think the lack of my understanding of finance, mentorship and information on what it really means to fulfil this role, places me in my current state. I have recently signed up for the Being a Director series training, to gain the basic skills and a broader understanding of what my duties actually are. As you said ‘being a NED is not just about helping the organisation succeed, but so much more… I think by having joined up with IoDSA, it will allow me to access a vast amount of information relevant to my role and help me fully understand and fulfil my role and responsibilities as a NED.
Pako Kedisitse says...
Posted Monday, 17 August 2020
Thank you Parmi and Prieur for continuing to psyche us up in our roles and responsibilities as directors. I cannot agree with you more that knowledge is power. However, I would like to suggest that this knowledge should be acquired with maturity and the right motive of leadership. It would be unfortunate to observe that a director studies accounting to start competing with CFO or human capital to compete with human resource director. Directors should be prepared to utilize their skills and competencies at leadership and strategic level with a view to blending their competencies and experiences to beneficially mentor management and more importantly to enhance the latter's goal congruence with the vision of the organisation. Indeed, numerical and accounting skills are essential, especially for the knowledge of reading and interpretation of accounting. No director will ever be exonerated from an offense due to lack knowledge of accounting.