More rigorous standards of appointment and performance on company boards would help to reassure the public that recent events will not be repeated
IT USED to be that being appointed a director – executive or non – was a cause for celebration. After all, a fairly significant career milestone had been achieved and one’s contribution publicly recognised. Surely all that was left was to sign the documents and bask in glory?
A thorough understanding of corporate governance and fiduciary responsibilities, the overall legalities of the position of director, the ultimate implications of failing to uphold these statutory obligations were, by some, held dear, by others perhaps not totally understood.
Suffice to say, the majority fell somewhere in the middle, with crucial training, mentoring and general preparation for this new role often given but a cursory nod. Continual personal assessment and company performance analysis – the most vital of health checks – may not have been given the deserved prominence on occasions.
A less than professional approach to board management and lack of personal accountability, in good times, can go unnoticed. However, when one looks at the global standards of corporate governance of late, we can see that we are awash with examples of how the process, when not adhered to, can create problems on a mammoth scale.
If our brightest and best global businesses are somewhat sporadic in their board management, one wonders to what extent – or not – thousands of medium to large-sized Irish companies are adhering to the rules and regulations.
Minister for Finance Brian Lenihan’s bank panel presents an interesting scenario. It contains some excellent people with proven careers. It also contains names that are perhaps reminiscent of some turgid semi-State and other government-appointed boards of the past. One wonders how wide the Minister’s net was thrown to identify suitable people and if successful Irish executives working abroad were considered.
Perhaps he should also look at non-executive directors that have been prepared to challenge the status quo with respect to corporate governance and fiduciary responsibility.
Those, for example, who campaigned openly to rid the system of “contracts for difference”, a mechanism that contributed significantly to the current malaise.
It would be interesting to learn what process was employed to ensure the suitability of those nominated. Best practice would dictate the establishment of the particular skills that are needed on boards. What core competencies are needed?
What is the function of the non-executive director? The principal responsibility of any director is to look after the company’s assets and to run the company in a way that will prove most profitable and successful for the benefit of its shareholders.
According to Derek Higgs (author of the Higgs Report, 2000/2001) the board's role is also to provide entrepreneurial leadership of the company within a framework of prudent and effective controls that enable risk to be assessed and managed.
A non-executive director does not have a contract of service and usually serves on a part-time basis only. She or he does not have any management function in the running of the business, other than assisting in the deliberations of the board.
However, the legal powers and duties are identical to those of executive directors. Higgs states that a comprehensive, formal and tailored induction should always be provided to new non-executive directors and that the chairman should take a lead in providing this. Non-executive directors should appraise their individual skills, knowledge and expertise regularly and companies should acknowledge that to run an effective board, they need to provide resources to develop and refresh the knowledge and skills of directors, including non-executive directors.
A board performance appraisal gives the chair the information and authority to manage the board more effectively. If it becomes evident that a new appointment is not working, Higgs believes there should be an early “blame-free” resignation.
Higgs points out that using personal contacts as a main source of candidates will tend to favour those with similar backgrounds. Undoubtedly, ordinary citizens across the globe must be disillusioned by the performance of many board directors and standards of corporate governance and regulation. They deserve better.
Barry O’Connor is managing partners with Merc Partners, Search Selection
John Waters is on leave