Aspects of National Budget: How do we go about it Madam Minister? Part 6
In our last article, we discussed the main aspects of the Governing Bodies’ proper establishments and the related oversight by way of steering state- owned entities ( SOEs) executive leadership Governing Bodies.
We covered the issues on capitalisation of the SOEs and maintenance of that capital by monitoring and evaluation of how they fare in the market in their industry space. We also asked ourselves if there is proper leadership both at Boards and executive managements levels. Of course, there are some SOEs which strategically and operationally sound in the way they conduct themselves.
In this article, we will, initially, confine ourselves to the leadership of SOEs at the Governing Body and executive management levels. The question is, do we appoint the right people in the SOEs and Governing Bodies? Do we make proper conversion of new director’s mindset, especially, those that are new in that space? Are these directors subjected to pre- appointment evaluations both new and old to check if they are conversant with directorship issues? Are directors properly inducted timeously before carrying out their appointment assignments or are they left to fend for themselves in their acts of directorships? We are referring to the assessment of directors whether new or old and this was not a mistaken statement.
There are three mistakes that are commonly committed by a lot of people and corporations. One, they believe that a director who sat in many boards is technically knowledgeable and experienced. That could be true; however, there are those who have experience of very serious mistakes. Two, there is also a belief that no one should be appointed to the board without the prior requisite experience to serve in Governing Bodies. That is not true; if all proper arrangements are observed, one can be appointed to the board as a new director and within a short spell becoming the best in many aspects of what it takes to be a director of substance. Nevertheless, we thank a lot of shareholders and other corporate stakeholders who they, sometimes, become reasonable to appoint people who serve in their boards for the first time. I would also like to thank those who gave me that opportunity at my younger age to serve as a Trustee and subsequently as a director of several companies and across the borders.
A lot of companies of substance overseas consider the newcomers to serve in their board. For example, in 2018, according to research published in the Spencer Stuart Board Index, there were 33percent of S& P 500 appointments and 32percent of FTSE 150 appointments were new directors serving in their first corporate boards. The third and last main mistake is considering a balanced board in a narrow mind of diversity of qualifications. It is common to hear people priding themselves with friends composing a think tank in one board by believing that it is a balanced board. Of course, that is an aspect of the board composition and therefore requires some other ingredients to add to the effectiveness of the board.
Certainly, the three mistakes that have just been discussed if considered for boards appointments, contribute a great deal to near to reality board composition and by extension to the dynamics of the board. A first- time appointee to the board brings a totally different perspective, especially, that of subjection to a learning curve which will consequently humble him/ her during those stages till he/ she get used to the boardroom environment. A person who served in many boards but lacking technical knowledge and experience will bring another perspective.
The third person who determined a balanced board by a narrow perspective of qualifications will also be reduced to humility when joining a smart and effective board. In a word, the effectiveness of the boards is nurtured by diversity, equity, and inclusion ( DEI) considerations which could be explained at later stages of this discussion
To compound the situation, there is another misconception to the effect that, only people working for the government and SOEs can represent the government in the boards where the latter has shareholding interests. Based on that, there are a lot of directors in SOEs who supervise the Chief Executive Officers who are more experienced than they are and therefore without any channels of empowering these officers by way of explaining to them what the director is and the role he/ she plays in the oversight of the organisation. That is where in the commercial SOEs scandalous issues such as conflicts of interests, causing insider trading, information asymmetry become orders of the day.
In the next article, we will continue this discussion and make suggestions to what could be done as remedial measures for the possibility of the rescue of SOEs from their governance milady and, to a certain extent, their economic entanglements. We extend our gratitude to our readership.