Governing Body and Executive Remuneration: Is there Sustainability in this Important Factor in Business? Part 8

In our last article, as a continuation of the discussion on governing bodies members’ and executive remunerations, we considered some aspects of human capital together with how directors are recruited, inducted, trained and enhance boards sustainable development. We also noted that due to peculiarities of directors’ role and responsibilities, there are only a few recruitment agencies that can be competently involved in the recruitment of directors. The directors’ competencies inclusive of their basic and diverse foundational competencies were discussed. The discussion ended in the appeal for consideration of the firsttime recruits to the boardrooms as the main ingredient to the boards’ composition because of diverse peculiarities of their newness in boardrooms. In this article, we conclude our thought process on the issues relating to the first- time board appointees’ important contribution to the boards’ composition and the resultant dynamics of the boards. There are other additional justifications of the first- time boards’ appointees. They have acquired a diversity of trending qualifications which are also enhanced by a variety of their skills currency, some of which are derived from social media, other sources and constructively leveraged to achieve some business objectives.

Based on that, diverse skills and their divergent perspectives enhance diversity of boards’ succession planning on a long- term basis, especially the youthful directors.

These prospective directors, usually, fend for themselves amid the harsh realities of unemployment and therefore have the potential of adding the entrepreneurial perspectives to the boardroom. Due to their mind- set and influence by their perseverance in life, they could precipitate professionalisation of directorship transformation.

It should be remembered that some countries are business- oriented in their economic development; we may recall the early mining uprising that transformed this country as far as economic development in any form is concerned.

The entire mining value chain was established and driven by entrepreneurship which were imported through the multinational companies from overseas.

That development then gave the impetus to the development of policies, such as economic, fiscal, and monetary policies, to mention but a few which would not have manifested without the prior entrepreneurial manifestation during the rudimentary stages of the economy in the context of Botswana.

For example, the Dutch India company, brought a lot of investments in Netherlands and other European countries, especially, during the industrial revolution. It should also be noted that, that multinational company also had great influence on the evolution of corporate governance in those countries.

That transformation also precipitated and facilitated conversion of small families’ sole tradership businesses to flotation of joint stocks to grow businesses.

Although that economic transformation brought joint large stock investments, it also brought conflicts of interests due to goal incongruence among investors caused by the consequent agency theory ( Agency problem) when the corporate leadership of businesses were shifting from the investors to company directors and management because the small businesses were then lacking capacity to trade due to capital and liquidity buoyancy. In fact, that was the time when the first company was incorporated in 1855.

Based on the importance of entrepreneurship, it can be extrapolated to enhance commercialisation of many aspects of the economy through professionalisation of directorship as the torch bearer of this transformation agenda.

Professionalisation of directorship can be led by the professional value analysis in the context of Botswana and benchmarking in countries where this is optimally leveraged, and it is working successfully for those countries.

The value analysis can be followed by mindset change towards the perception of directorship profession with a view to enhancing value creation through ethical and effective leadership of the boards across the board in the country including state- owned entities ( SOEs).

There have been historical successes in some countries through running SOEs as businesses. The concept of commercialisation of SOEs before the conception of privatisation has produced a lot of results for many countries.

Coming back to the competencies required for directors, in addition to the basic qualifications or hard skills, they further require soft skills and personal attributes conducive to the boardroom.

In their Finding the Right Fit: Assessing First- Time Candidates for Non- Executive Directors, SpencerStuart, recommend the following factors: interpersonal skills, intellectual approach to boardroom issues, personal integrity, independent mindedness of the prospective director and the candidate should be inclined to engage and to be, reciprocally, engaged.

This latter attribute brings the potential for the courage required for the effective and ethical director. In addition to these, directors also require additional hard skill which is financial competency. A lot of directors believe that this latter competency is optional.

One may recall in Centro case in Australia, where the courts could not absolve directors from their fiduciary responsibility who overlooked financial misstatement due to their reliance on the Chair of the Audit Committee and the Committee itself.

In the next article, we will further give insights in director recruitment, the other subsequent stages of director training and development. We extend our gratitude to the usual readership feedback.