The Power of the Governing Body Composition- Part 1

In the last article, we started our discussion on the power of the governing body composition and further noted the main influencers of the size of the governing body.

We mentioned legislation as one of the most influencers on the size of the Board and in the case of state- owned entities, we mentioned the legal instruments or the Acts establishing such entities. In addition to legislation and corporate governance as the main influencers of the size of the governing bodies, we noted certain factors such as diversity, equity, and inclusiveness ( DEI) of governing bodies. In this article, we will further reinforce our discussions on the issues surrounding DEI based on legislation and corporate governance. DEI, based on legislation and corporate governance is likely to avert, compound or to, a certain extent, play a middle ground in ameliorating threats of conflicts of interests.

Conflicts of interests are caused by the appointment of a director by a certain company or subsidiary to the group in expectation of unduly controlling that director. If the director appointed lacks independence, then he or she will not make decisions in either Board meetings or any other fora in good faith, in the best interest of the company for a proper purpose. It should be borne in mind that these are common law principles that demonstrate the main tests of conflicts of interest. This phenomenon does not pervade commerce and industry alone where monetary decisions take a centre stage. Conflicts of interest can also affect both state- owned entities and not- for- profit organisations/ companies.

Head of the executive in the line Ministry or the Minister himself may expect a special relationship between him and a director appointed beyond the arm’s length relationship. That trend will continue spiralling till it affects directors/ trustees representing other government departments including the private sector. These misconceptions about the appointment to directorship grew day and night and gave birth to what is known as a ‘ representative director’ nowadays. It should be borne in mind that directors/ trustees should carry out their duties diligently like any other director despite their name as ‘ representative directors’. However, this does not mean that we ignore the challenges they are facing due to misconceptions about a representative director/ trustee who comes with a lot of conflicts of interest. In fact, the common law principles are mutually beneficial to the company and its stakeholders given the fact that the modern corporate governance, currently, insists on stakeholders’ capitalism as opposed to shareholders capitalism as the Americans define it. If a director carries out his/ her duties, diligently, in good faith, in the best interest of the company for a proper purpose, this denotes that the director executes his duties ethically and effectively; Therefore, this good performance, effectively, covers all stakeholders. One will recall that the proponent of shareholders’ capitalism was Milton Friedman who asserted that everyone taking part in the value creation for the company was solely doing that for wealth creation for the shareholders. “The Friedman doctrine, also called shareholder theory, is a normative theory of business ethics advanced by economist Milton Friedman which holds that a firm’s sole responsibility is to its shareholders. … As such, the goal of the firm is to maximise returns to shareholders.” Available: https:// en. wikipedia. org Accessed on 05 October 2021. We will find time to unpack the issue of a representative director/ trustee and its challenges. Another important consideration for the board composition and DEI is the balance of power or the mix of organisational leadership centres of power. The main centres of power comprise the mix of executive directors and non- executive directors, the latter with whom should be in the majority. Usually, executive directors will be the link pin between the non- executive directors and the employees. They are there to lead the management in the preparation of the strategy, draw the policy and execute strategy implementation. They add to the employees’ present voice. Executive directors facilitate equitable dissemination of information from management to the non- executive directors. The main role of the non- executive directors is that of oversight. They also bring independent thought processes to the Board. In other words, on the one hand, the executive directors also bring into play the operational voice which, subsequently, brings to bear judgement as an aspect of the last stages of the oversight. On the other hand, independent views also bring to bear the oversight judgment. Another aspect of the balance of power is the functions of committees of the Board discuss and recommend to the Board the other dimensions of the strategy. The size of the Board either small or larger has the effect of enhancing or curtailing the balance of the boardroom power.

In the next article, we will be continuing this topic. We thank our readers for their continual feedback.