Corporate Governance and Global Board Best Practices

Nowadays, board directors have a better knowledge of the companies they work for thanks to rapid advancements in technology and latest tools and techniques at their disposal. They are more strategic in their approach and spend most of their time on formulating new strategies and improving already existing ones. In this regard, the board directors working in private organizations spend more time on strategy as compared to those in public sectors who are more inclined towards compliance.

Despite all the knowledge and confidence board directors have nowadays, they still find it hard to find time to manage business risks. Prof. Andrew Kakabadse of Cranfield School of Management presents some research findings in the overall respect of corporate governance in the following lines.

It is imperative for business leaders to recognize the fundamental differences and divisions that exist among their top teams regarding future and vision of the organization. This is because they are divided on the purpose and mission of the organization.

Similarly, some of the board members do believe that there are certain issues that must be discussed in team meetings but aren’t because they are too sensitive to be discussed. As a result, many managers do not bring the problems on the surface that are adversely affecting the performance of the organization.

Some people who are faced with the increasing problems related to the strategic alignment also have better insights about how to resolve them. It is often said that more pain results in more gain and same is the case here. However, as teams in organizations are divided, they end up being paralyzed despite the fact that they have greater insight of the problem. In fact, only one third of the top teams manage to align themselves and work collectively for the betterment of the organization.

The role of board is to design and approve future strategy. However, it depends upon the demographics and context of the board and the business issues it is facing. Therefore, it is very difficult to emerge with standard best practices for the boards. It is up to the board itself to analyze how it is operating and how it can add value to the organization.

In the context of above discussion, 85% of board members in UK have no shared view on the competitive advantage of the company. Similarly, they have no shared view on how to make company different and better from others. The selection criteria for selecting board members are also unclear because approach of every person varies be it is about defending the reputation of the company, risk management or governance etc.

As compared to British, Americans boards are more inhibitive and defensive. For instance, many non-executive directors have never met the manager of the company whose board they are sitting at. In American boards, CEO, general manager and chairman drive the board dynamics and strategy. Usually, all these posts are held by one person who controls and administer all the aspects of board operations, resulting in poor performance of the organization.

Board members in China, Dubai and South Africa have to face similar problems. Australia is the only country with far better cohesion between boards and managements. There exists are shared view about the competitive advantage of the company among the board members. They also share a balanced portfolio in terms of education, experience, competency and functionality. There is a greater feeling of role contribution and added value to performance of the board.

The Importance of Board Chairman:

The chairman is perhaps the most important part of the board. A good chairman means a good board and band is chairman is synonymous to bad board. A board chairman affects everything from shareholder’s and stakeholder’s trust to corporate reputation and philosophy of the corporation. He is a role model and a mentor for developing leaders. Most importantly, he provides strategic understanding to the entire organization.

Every outstanding board chairman have six qualities such as:

  • He delineates boundaries such as what is the role of chairman and mandate of CEO.
  • He is a “sense maker” that is he recognizes the strategic reality and aligns top teams in the organization.
  • He also interrogates the arguments such as how to breakdown them into workable components and manage expectations.
  • A good board chairman influences the outcomes by guiding the conclusion, surfacing elements, working through the divisive emotions and focusing on salient points in the debate.
  • A good chairman has the integrity, he wins the trust of others and is a man of action rather than words.
  • He assesses and reviews the board and work diligently for the professional development of other board members and directors.

Finally, a good board maintains a balance between its competencies and capabilities and has deep insights about the company. Similarly, a great board is clear about its purpose, contributions and value added to the organization.  Each nonexecutive director in the board understands is role and does not interfere irrelevant matters.

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