The Fine Line: Avoiding Operational Overreach as a Non-Executive Director

By Professors Parmi Natesan and Prieur du Plessis

The role of a non-executive director (NED) is a delicate balancing act, walking the fine line between effective oversight and undue interference in day-to-day management. Coined by Alan Weiss, the phrase "noses in, fingers out" aptly describes the ideal approach for NEDs: they should be well informed and involved in the company’s affairs without crossing the boundary into operational management.

Understanding the role of a non-executive director
The primary responsibility of NEDs is to provide independent oversight and constructive challenge to the executive management while ensuring the board functions effectively. According to the King IV Report on Corporate Governance, the board should ensure it retains an appropriate balance of power and authority to avoid one individual or group dominating the board’s decision making. This principle underscores the importance of NEDs maintaining their independence and not encroaching on the duties of executive management.

However, the line between oversight and management can sometimes blur, leading to what is commonly referred to as board member overreach. This occurs when NEDs become too involved in the day-to-day operations of the company, thereby undermining the authority of the executive team, which could potentially lead to confusion, inefficiency, and conflict within the organisation.

The risks of operational overreach
Operational overreach by NEDs can have several negative consequences. According to a report by Research Gate, when NEDs overstep their boundaries, they may inadvertently stifle innovation and slow down decision-making processes. The executive team, which is supposed to manage the company’s operations, may feel undermined, which could lead to tension and a breakdown in communication. This can erode trust between the board and management, making it difficult for the company to implement its strategic objectives effectively.

Moreover, a board that micromanages can create an environment where executives are hesitant to take the initiative or make decisions without board approval. This not only slows down the company’s operations but also demoralises the executive team, who may feel that their expertise and judgment are not valued. The board’s primary role is to steer the company toward its long-term goals, not to involve itself in the minutiae of day-to-day management.

Avoiding operational overreach
To avoid the pitfalls of operational overreach, NEDs should adhere to a few key principles and best practices:

• Clarity of roles and responsibilities: It is essential to clearly define the roles and responsibilities of NEDs and executive directors. The board should operate at a strategic level, focusing on setting the company’s direction, overseeing its performance, and ensuring compliance with legal and regulatory requirements. The executive team, on the other hand, should be responsible for implementing the company’s strategy and managing the organisation’s operations.
  
  
• Effective board meetings: One of the reasons why boards become too operational is poorly structured board meetings. Meetings should be designed to focus on strategic issues rather than operational details. As noted by Boardpro, board meetings should allocate sufficient time for discussing long-term goals, risks, and opportunities, rather than getting bogged down in the day-to-day operational challenges that should be handled by the executive team.
  
  
• Regular training and development: Continuous professional development is crucial for NEDs to stay informed about their role and the broader governance environment. Professional training ensures NEDs understand the boundaries of their role and are equipped to challenge the executive team constructively without overstepping.
  
  
• Board assessments: Regular board assessments can help identify instances where NEDs may be overreaching. These assessments should evaluate whether the board is maintaining its focus on strategic issues and whether NEDs are interfering with management responsibilities. Feedback from these assessments can be used to refine the board’s approach and ensure NEDs remain within their proper oversight role.
  
  
• Encouraging open communication: Finally, fostering an environment of open communication between the board and the executive team is vital. When NEDs and executives have a clear understanding of each other’s roles and maintain a dialogue built on mutual respect, the risk of overreach is minimised. King IV emphasises the importance of a culture that encourages transparency and accountability, which can help in maintaining the delicate balance between oversight and management.

In conclusion, the role of a NED is pivotal in ensuring good governance, but it requires a careful balance between being sufficiently involved and not overstepping into operational management. By adhering to clear guidelines and focusing on strategic oversight, NEDs can avoid the trap of operational overreach and contribute effectively to the success of the organisation.

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

Parmi Natesan		Dr Prieur du Plessis