Board should provide strategic guidance

There are a variety of views about the roles and responsibilities of a board of directors and most of these views share common themes.

ONE of the key themes is that the board gives strategic guidance to management and the company in general. The Public Entities Corporate Governance Bill (henceforth “the Bill”) and the ZimCode both highlight these key roles and responsibilities.

The board plays a crucial role in shaping the direction of the entity they lead by giving appropriate advice, support and counsel to management as well as monitoring performance of the entity.

The ZimCode in chapter 3, principles 52-186, addresses board of directors and individual directors. It clearly points out that the board sets the company’s strategic aims as well as approaches for achieving those aims.

What it essentially means is that the management develops strategies for approval by the board and the board must be in a position to thoroughly scrutinise these strategies and give adequate advice to the management.

If the board is not well versed in the area of strategy it may just end up ratifying whatever is brought by management which is usually to the detriment of the company.

This is why the ZimCode insists on skill, experience and expertise as requirements for board members so that they can direct the company effectively.

Principle 169 of the ZimCode notes that the board must monitor performance of the entity as a whole by effectively monitoring the board performance, performance of board committees, individual directors and senior management.

This monitoring action should result in prompt corrective action when the need arises. Setting and achieving objectives for the continuous improvement in the quality and effectiveness of company performance is encouraged.

Similarly, the PECG Bill in clause 22 will give a directive to the board to be more agile in providing strategic guidance to entities they lead.

The board will be expected to develop strategic plans setting out the entity’s objectives and priorities and how they will be achieved.

This clause gives guidance as to how the strategic plan should be drawn and things to include in it. The strategic plan then has to be laid before the National Assembly.

The Bill surpasses the ZimCode by giving room to the public to inspect the entity’s strategic plan which should be readily available at the entity’s office.

The boards of public entities will also be expected to annually review their current strategic plans to ensure that the plans remain relevant to the entity.

Clause 24 of the Bill introduces performance based contracting.

There has been growing consensus around the world that the contracts of the board, CEOs and senior management have to be performance based in order for the entities to realise value in the long term.

Performance based contracting will eliminate undue rewards to non-performers and encourage people to put all their effort knowing that they will not be guaranteed of contract renewal if their performance has been mediocre.

Performance based contracting is also widely addressed in the ZimCode.

The Bill will cause public entities to enter into performance based contracts with their senior staff members.

Senior staff members will not be allowed to assume office until they have signed performance contracts.

Performance will be reviewed annually and the results are reported to the line minister.

Accordingly, a new contract cannot be signed without a performance review report portraying positive results.

In the same vein, Clause 25 of the Bill will oblige line Ministers to enter into performance contracts with the board members of the public entities within their portfolios.

The thrust is to foster performance based behaviour in all public entities.

For more information on the ZimCode contact: secretariat@ nationalcodeoncg.co.zw