Why competent directors are invaluable
Monday, 13 July 2015
The role of a company director is a multi-faceted and complex one, comprising a number of essential skills and responsibilities, such as ensuring sound management practices are in place and looking after the interests of the shareholders – making competence in carrying out these tasks a vital trait.
"The competency profile for directors is made up of the values, knowledge, skills and experience that a director draws on when fulfilling their roles and responsibilities as part of a board, performing their duties as direction giver and applying their knowledge of the legislative, business and ethical environment when making decisions,” outlines the Institute of Directors in
Southern Africa’s (IoDSA) Director Competency Framework.
It is effectively the combination of these traits that are the hallmark of capable and professional directors. However, being an effective director also calls for sound independent judgement,
maturity, a sound knowledge of the business environment, as well as the ability to work in a collegial manner with other board members, notes leadership advisor and partner at Heidrick and
Struggles, Johann Redelinghuys.
Solid independent judgement is perhaps one of the most important traits for directors to have, Redelinghuys points out, as the board of directors have the task of providing both governance
and mature balanced guidance to the organisation’s management.
Clarifying roles of executives and non-executives
In order to understand and enhance a director’s performance, it is necessary to understand the difference between the roles and functions of executive and non-executive directors. While there
is no legal distinction between the two, their roles and functions do differ.
An executive director, as the name suggests, is the chief executive officer (CEO), managing director, chief financial officer, chief operating officer or other full-time employed executive
who serves on the board of an organisation. An executive director’s main role is the day-to-day operation of the business, as well as to design, develop and implement strategic plans
for the company as cost-effectively and timeously as possible. Being involved in the daily running of the business means that an executive director is further responsible for motivating staff and driving the organisation’s culture.
A non-executive director, on the other hand, is not part of the executive management team and is, in fact, not an employee or affiliated with it in any way other than serving as a director. They
are not involved in the day-to-day running of the organisation, but rather function as custodians of the governance process, direct and monitor executive activity and performance of management, contribute to the development and implementation of strategy and ensure that risk management systems and financial controls are robust.
"To this day there remains confusion between the roles of executive management and non-executive governance,” Redelinghuys reveals. "One of the most common problems of
non-executive board members is that they don’t understand the business of the company. However, more attention given to induction of new board members and ongoing education would
ensure a productive contribution. A non-executive director must be able to maintain an arms-length relationship with the company’s operations and not be tempted to interfere directly.”
Core competencies and responsibilities
Compliance with the relevant legislation, regulations and codes is a fundamental obligation of both an executive and non-executive director, explains the IoDSA’s Executive of the Centre for Corporate Governance Parmi Natesan. A core responsibility for directors is to abide by regulations and codes, including the Companies Act, the JSE Listings Requirements (should the organisation be listed on the stock exchange), the King III Code of and Report on Governance Principles in South Africa, and the company’s founding documents and charters.
King III remains highly regarded as governance best practice, points out Natesan. According to the report all directors should be individuals of courage and integrity to bring effective judgement
to bear on the decisions of the company and ethically lead the company in the long-term interests of all of its stakeholders.
Five moral duties, in particular, have been identified in the King III report that every director – be they executive or nonexecutive - needs to possess as a steward of the company: namely
conscience, inclusivity of stakeholders, competence, commitment and courage. Intellectual honesty and independence are cornerstones of conscience and working within the best interests
of the company and its shareholders, while inclusivity is regarded as essential to achieving sustainability. Competence involves having the relevant knowledge and skills, and continually
developing and building on those skills; commitment refers to diligence and devoting sufficient time to company affairs and compliance, while courage includes taking risks associated with
controlling a successful business, as well as acting with integrity in all decisions and activities.
"My own feeling is that it is about finding the right combination of knowledge, skills and experience,” points out Natesan. "Apart from this, certain personal attributes are very important, some of them being integrity, curiosity and courage, the ability to ask tough questions, and interpersonal skills. Genuine interest in the organisation and its business, as well as good instinct and judgement are also critical.”
Natesan concurs with Redelinghuys that the ability to work in a collegial and reciprocal team is a necessity. Courage is the most important trait, she reflects, particularly with the rise of corruption and unethical behaviour – making it necessary for directors to stand up against these practices in the best interests of both the business and its stakeholders.
The roles and responsibilities of directors further include contributing meaningfully to the setting and implementation of strategy. The ability to oversee a range of management activities at board level – such as risk management policy formation and the oversight of its implementation,
information technology (IT) policy formation and oversight of implementation, compliance management policy formation, stakeholder policy formation, integrated reporting, the
management of ethics and remuneration policy – are also a core part of a director’s functions.
Central to performing as a competent director is the ability to adopt creative and constructive solutions to business challenges by analysing business information in a logical manner, as well
as adapting to environmental needs by understanding other staff and clients’ perspectives and building relationships through conflict management.
Confidence, self-awareness and self-control are, therefore, vital for directors when carrying out their tasks. "A fearless and independent director can alert shareholders and management
when problems are detected and bring them to the attention of the Board,” Redelinghuys acknowledges.
Even the most competent directors can benefit from the continuous development of skills and knowledge to improve performance and productivity and there is a variety of means through which directors can build professional skills, according to Natesan. The most effective methods, she recommends, are that all newly appointed directors should undergo an induction
programme to ensure that they are properly equipped for their role on the board and to familiarise them with the governance environment within which they will be working; ongoing training
should be sought in order to build a deeper understanding of the environment they work in and serve as a director; new and