How to tackle challenges in the boardroom

Mar 21, 2018

Competition is tough and there is no shortage of new entrants looking for ways to disrupt the establishment

SUCCESS | BUSINESS

By Amin Mawji  

Corporate graveyards around the world are full of examples of once-powerful businesses that collapsed in spectacular fashion. And each time we see a corporate failure, the world looks up and says: "How did that happen?"

Regulators, lenders, investors, politicians and suppliers are left scratching their heads and wondering what precipitated the fall of a business that everyone assumed was sound and strong.

There are, of course, many reasons why businesses fail or lose money. The market is an unforgiving battlefield. Competition is tough and there is no shortage of new entrants looking for ways to disrupt the establishment. In an open market, business failure is nothing new.

Sometimes, the fault lies in bad business decisions. Sometimes it is simply a case of bad fortune. More often, it is a combination of factors. Whatever the reason, one factor that often stands out as a major contributor is the failure of governance.

When we speak of "governance" we are generally referring to the framework of rules, systems and processes that an organisation puts in place to oversee and monitor - or "govern" - its activities. The conduct and the judgment of those who are charged with running an organisation is often influenced by the quality of the governance in place.

A sound system of governance is one that allows organisations to innovate and create value while managing their affairs with proper oversight and accountability, proportionate to the nature of the risks involved.

In many parts of the world today, the corporate governance framework is shaped by regulation. Some aspects tend to be mandated by law. Other aspects are governed by regulatory guidance and subject to voluntary implementation. The force of regulation, encouraging organisations to either "comply or explain" how they have applied the guidance, has undoubtedly been a strong driver for implementing good practice. But the best-in-class organisations tend to be those that see strong corporate governance as a critical driver of business performance - and not simply a compliance matter.

If we have learnt one lesson from the spate of global business scandals, it is that insufficient challenge in the board is often a key precursor to business failure. This is why independent-minded non-executive directors can play a powerful role, ensuring that business proposals are thoroughly considered. They can ensure that business decisions are not dominated by any one director or chief executive officer.

The need for boards to dig deep into the business, to challenge strategy and to provide constructive challenge to management is an important element of sound governance. To be clear, the purpose of challenge is not to only invoke unproductive argument, but to also stimulate discussion and debate.

The lack of challenge or the predominance of non-independent board members is usually a good warning sign of poor board composition. Other indicators may be the lack of board committees, a management habit of overriding controls, and the presence of family members holding board positions without appropriate skills.

It is an important aspect of national development that standards of governance, across the private and public sectors, should continue to mature. This is why it is good to see institutions like the Institute of Corporate Governance of Uganda taking a leadership role on this topic. Their work helps to get across the message that whether you are a small business, a public company or a public service organisation, the way you run your business - and the purpose to which it is run - matters.  Value creation and good governance are two sides of the same coin.

The writer is the diplomatic representative of the Aga Khan Development Network based in Kampala

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