Byline: Doug Matheson
Underperforming boards and directors are delivering poor company performances and too many company failures. Companies that should be doing well are doing little more than surviving. Directors' and boards' reputations are, in the eyes of shareholders, investors, the media, public and regulatory agencies, taking a beating. The world and ways of corporate governance must change and adapt to meet new realities.
The new economic and business paradigm, for example, has landed boards of directors with a principal role in delivering company performance. Their development and oversight of strategy and its execution, oversight of performance and identification and management of risk, collectively give directors a unique perspective and opportunity to provide good governance and leadership. Simultaneously however, directors must meet their fiduciary, legal and regulatory obligations and perform in ways that preempt the need for increased regulation while furthering the best interests of the enterprise.
Directorships have too often been viewed as honorary positions. Directors now have real work to do. They have responsibilities and legally enforceable duties and accountabilities. Good governance is now critical to the long-term sustainable performance of organisations whether they are private sector, public sector or not-for-profit.
Governance is an active, not passive, calling. The constitution or trust deed defines the rights, powers, duties and obligations of the company, the board, each director and the shareholders. A board's activities are determined by the powers, duties, and responsibilities delegated to or conferred on it by the shareholders, through the constitution. Company performance is the directors' and board's responsibility. They strategise it, oversee it and are collectively accountable for it.
A company board's fundamental purpose is to grow wealth and value. It establishes aspirational strategic goals, determines short and long-term strategies to achieve them and oversees performance. But increasingly directors and boards are failing in their duties and responsibilities. Consequently, those duties will be more robustly enforced by government agencies in future.
Despite the importance of and obligations to deliver good organisational performance, directors and boards comprise the only critical component of an organisation that is infrequently and often inadequately evaluated and, where job tenure is not performance-linked. Everyone else in the enterprise is accountable.
In the public sector, the Crown Ownership Monitoring Unit (COMU) advises the minister responsible on the performance of each of the state's 48 boards, identifies the skills and attributes required in each board, identifies director candidates and chairman appointments and, manages the recruitment and appointment process. The private sector could learn from this process.
The sagging state of governance demands that boards and directors be held significantly more accountable for their individual and group performance. It will take important governance process and formality changes to accomplish this. I have some suggestions.
1. Board governance committees
Company constitutions should require the board to deal with non-performing directors or chairs and provide for the board to act. Boards should appoint a governance committee comprised of the chair and up to three experienced independent directors. The governance committee's responsibilities would include:
* An annual review of board composition, competency and diversity requirements. Identify the skills, experience, competencies, backgrounds, perspectives and mix of ages, gender and ethnicity required to deliver the coming year's most effective board.
* Review the chair and individual director's performance evaluation. Confirm with the chair or director where performance evaluations are such that the individual should not be reappointed or be asked to retire. …