How can the board ensure good corporate governance?

The board’s effectiveness will dictate how the organisation functions in the long run. This means that the individual members of the board need a set of attributes that will allow them to provide proper stewardship and guidance and help the management team deliver on their strategic goals.

Let us examine some of the behavioural attributes that make an effective board member and director.

Being passionate about the business or a specific area of expertise is essential for a company director. A complete buy-in to the organisation’s mission, vision, values, and ethos will motivate people to give their best. Being passionate about the business will also help connect better with the other board members and the executive team.

All directors should possess a sense of curiosity and a willingness to learn new things. What was relevant in 2010 might not be applicable in 2022. There is a need to learn, unlearn and evolve constantly, and this is only possible with an innate sense of curiosity.

A director needs to ask the right questions and evaluate the short term and long term consequences when making a decision. It is not about having the correct answers all the time but focussing on the process of figuring out the solutions through critical interrogation and being curious helps immensely with this.

Successful directors can articulate their thoughts and opinions in a structured and straightforward way; they can tailor the content of their communication to the target audience and get their point across succinctly. Specific topics at board meetings can be controversial at times, and having the competency to navigate them using good communication is key to success. A confident director who can communicate their opinions clearly can help the organisation make better choices at solving problems or capitalising on opportunities.

No one director can be an expert on all subject matters. Hence it becomes highly imperative that a director listens to their colleagues when it comes to the conversations about the business. Other directors will contribute ideas/critiques from their area of expertise, and it is vital to include all their inputs when making a decision.

Proper listening at board meetings will also unearth some unarticulated business needs. Good listening coupled with curiosity to ask the right questions can lead to successful decision making in the boardroom.

There have been several incidents in the past where board members have been unethical, and it has negatively impacted their careers and the reputation of the organisation they represent. This is unfortunately prevalent in both for-profits as well as for-purpose organisations. A few examples of unethical behaviour are insider trading, embezzlement of donor monies, and overstating revenue and profits to lure investors.

As Potter Stewart puts it, “Ethics is knowing the difference between what you have a right to do and what is right to do” It is imperative that a director is highly ethical and does the right things without breaking the law. The tone for ethics in the organisation is set at the top.

There are times when the management team might be motivated by short term incentives like share price or performance-based compensation. It is the responsibility of the board to make them think long term. An effective director will focus on thinking strategically over a three to five year period and not focus too much on the next quarter or two.

Boards are incentivised to think longer-term and put strategies in place to execute the long term vision of the organisation. This long term thinking will help an organisation widen its moat and reinvest profits in growing its business.

Changes in the industry and business can have a massive impact on a company’s short, medium, and long-term strategy. The organisation’s strategy must foresee some of these changes and should be able to withstand and thrive when the environment has changed.

A director must be very agile to change direction when needed quickly to ensure good corporate governance. This means getting ahead of a trend to take advantage before the competitors and preparing well in advance with contingencies in place to switch directions when things don’t go according to plan.

As Michael Porter says, “the essence of strategy is choosing what not to do“. There are several competing priorities for a business that requires attention and resources, and at some level, all decisions made by Boards are resource allocation decisions.

A good company director will prioritise all decisions that have the most impact on the business, and frequently this means choosing only to execute a few things amongst many competing priorities. The ability to focus is hugely valuable in the boardroom to ensure good corporate governance. 

Being on a board is time-consuming. Board meetings and committee meetings require a lot of preparation time, and a director should be good at managing their time effectively. There is nothing worse than turning up for a board meeting without reviewing the papers and being prepared for discussions. Time management is crucial for a director to be successful.

As Malcolm Forbes puts it, “Diversity is the art of thinking independently together“. Diversity can manifest in many forms – people on the team, gender, race, thoughts, opinions, ideas, and a successful director needs to embrace diversity. This would also mean working with people from various backgrounds, building meaningful relationships at work, championing inclusion efforts, and accepting every different point of view before making decisions. It is a fact that diverse boards make better decisions. 

Good corporate governance combines the skills, knowledge, focus and passion of the board of directors. Directors are leaders of the organisation, and people in the company look up to them for direction. By exhibiting some of these behavioural traits, they can inspire other team members to work together with them to achieve the organisation’s strategic goals.