Blacks and the board­room

‘The sug­ges­tion that SA has this vast pool of black lead­er­ship tal­ent that’s be­ing over­looked by big busi­ness is patently un­true.’

Finweek English Edition - - Cover - JO­HANN REDEL­INGHUYS

THE IS­SUE OF TRANS­FOR­MA­TION – or the per­ceived lack thereof – on the boards of some of South Africa’s top com­pa­nies has flared up again in the me­dia of late. As so of­ten hap­pens, the de­bate tends to miss the point of what a board’s role re­ally is.

Make no bones about it: it’s vi­tal that we re­main sen­si­tive to the needs of black em­pow­er­ment in our busi­ness deal­ings. But board ap­point­ments aren’t just a num­bers game or a colour-cod­ing ex­er­cise that we do in pub­lic. To­day, more than ever, boards must de­liver real value to the com­pany and be ac­count­able to share­hold­ers.

A well-known piece of re­search by McKin­sey into cor­po­rate gov­er­nance shows that board­room per­for­mance and be­hav­iour can be di­rectly linked to share­holder value. In fact, in­vestors are gen­er­ally pre­pared to pay a pre­mium for com­pa­nies that show high lev­els of good gov­er­nance.

De­vel­op­ing an ef­fec­tive board that ac­tively mon­i­tors and guides strat­egy, that en­sures that cor­po­rate fi­nan­cial and non-fi­nan­cial com­mu­ni­ca­tion to in­vestors high­lights key value and risk driv­ers and that holds se­nior ex­ec­u­tives ac­count­able for suc­cess­ful strat­egy for­mu­la­tion and im­ple­men­ta­tion gives in­vestors more con­fi­dence and po­si­tions the com­pany bet­ter for fu­ture suc­cess.

Need­less to say, the boards of the top 40 com­pa­nies on the JSE are un­der­stand­ably re­luc­tant to ap­point board mem­bers on the ba­sis of po­ten­tial alone – or make ap­point­ments that don’t add any mean­ing­ful strate­gic value to the com­pany – sim­ply to ap­pease cer­tain in­vestors.

The sug­ges­tion that SA has this vast pool of black lead­er­ship tal­ent that’s be­ing over­looked by big busi­ness is patently un­true. Cur­rently, there’s a huge will­ing­ness on the part of JSE com­pa­nies to hire and de­velop black tal­ent – if they can find it. In fact, black lead­er­ship tal­ent is worth con­sid­er­ably more than the equiv­a­lent white lead­er­ship tal­ent at the mo­ment, and that is sub­ject to the nat­u­ral forces of sup­ply and de­mand that reg­u­late the mar­ket.

The truth is that there’s a dis­tinct lack of the board level lead­er­ship skills our com­pa­nies are look­ing for in SA across all sec­tors. There are a num­ber of rea­sons for that. Many of our best ex­ec­u­tives are be­ing lured over­seas by lu­cra­tive op­por­tu­ni­ties. Oth­ers don’t stay in one po­si­tion long enough to gain the nec­es­sary ex­pe­ri­ence to progress to board level.

Yet an­other group of ex­ec­u­tives is opt­ing to fo­cus on black em­pow­er­ment deals, which of­fer ac­cess to own­er­ship, a non-ex­ec­u­tive lifestyle and an in­come from div­i­dends with­out hav­ing to fret about the daily ac­count­abil­ity for a com­pany’s bot­tom line.

Part of the prob­lem in South African board­rooms is that many non-ex­ec­u­tives have lit­tle ex­pe­ri­ence of run­ning busi­nesses and don’t have a real, prac­ti­cal un­der­stand­ing of how cor­po­rate strat­egy works. They tend to fo­cus on their par­tic­u­lar area of ex­per­tise and the board there­fore has dif­fi­culty find­ing com­mon ground among all its mem­bers when fi­nally con­firm­ing strat­egy.

Board mem­bers need to have a sound un­der­stand­ing of the busi­ness and a broad per­spec­tive of the mar­ket. When direc­tors fail to de­velop a deeper un­der­stand­ing of the com­pany’s busi­ness and the broader gen­eral busi­ness is­sues in SA they’re un­likely and un­able to add any value at all.

So what’s to be done in the mean­time? For a start, suc­ces­sion needs to be­come the fo­cus of much more care­ful at­ten­tion. Boards of­ten spend a great deal of time on the fi­nan­cials and is­sues that can be dealt with ob­jec­tively re­ly­ing on hard num­bers. The eval­u­a­tion of can­di­dates for board ap­point­ments and their suc­ces­sion is fre­quently del­e­gated to nom­i­na­tion com­mit­tees with­out the full board tak­ing own­er­ship of the process. We should also change the ways we’ve tra­di­tion­ally at­tracted and re­tained top lead­er­ship tal­ent, both black and white.

We must put in place more rig­or­ous frame­works to eval­u­ate the per­for­mance of boards, to im­prove board­room dis­ci­pline and help them func­tion more op­ti­mally. We need to re­alise that ever-in­creas­ing de­mands for trans­parency and com­pli­ance sub­stan­tially raise the po­ten­tial for con­flict in the board­room and have to find ways of man­ag­ing that bet­ter.

In SA in par­tic­u­lar, that po­ten­tial is height­ened by the phe­nom­e­non of mul­ti­cul­tural boards that don’t have a long track record of trust borne out of know­ing and un­der­stand­ing each other. The soft is­sues, such as trust and col­le­gial­ity, are just as im­por­tant as di­ver­sity, in­de­pen­dence and rep­re­sen­tiv­ity.

The bot­tom line is this: trans­for­ma­tion and black em­pow­er­ment are crit­i­cal im­per­a­tives to any com­pany in SA to­day. But they can’t come at the ex­pense of good gov­er­nance and board­room rigour.

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