Ignorance of the workings of an organisation, it’s culture, vision, values, policies, strategy and risk appetite ensures a dysfunctional board. It is important that the board understand that it is not their role to manage an organisation, it is their role to manage risk. In doing so, they must be prepared to challenge the logic and consistency of what management proposes by way of strategies and annual plans with what defines the organisation. They must also challenge the rate of progress of individual initiatives and projects and any consequential risk delays or underperformance may bring. To fulfil these obligations, board members must have an understanding of the business they are in, how their organisation works and the markets they service.
Indifference to their accountability as directors creates a flow on effect of indifference throughout the organisation. “If the board does not care, why should we?” is the thought process. Indifference manifests in many ways; lack of attendance, lack of involvement in board sub-committees, uncritical evaluation of agenda items and even dozing off! Indifference also manifests itself as action at times. For example, insisting that safety be the first agenda item of every meeting that is held in a room with trip hazards as electrical cords criss-cross the floor from laptops and presentation devices.
Having a keen interest in an agenda item or topic does not exclude a board member from the ranks of directors exhibiting good governance. However, having a predilection for specific outcomes without robust analysis and seeking of alternatives to their favoured process or initiatives, does.
In boards of small companies, I see examples where large risks are ignored by the board in favour of involving themselves in management matters which should be trivial to the board. For example, worrying about who was driving what company vehicle on a Saturday afternoon out of normal work hours instead of ensuring that plans to remove a major physical risk, the consequences of which include a major negative environmental outcome, are on time and within budget. In large organisations we frequently hear about board members being “unaware” that disaster was about to occur, or are dumbstruck that a maleficence was happening under their watch. A review of board processes inevitably reveals a lack of attention to controls which were unequivocally their responsibility. Too many board members choose the ease of familiarity over the accountability of managing organisation-wide risk.
For good governance to flourish, board members must bring a diversity of competences and networks to the organisation. Each however, should have some basic shared competences including financial literacy, an understanding of the management of risk, preferably to ISO 31000, and their legal and fiduciary obligations.
Boards and board members who abdicate their responsibility for taking decisions and thereby accountability for those decisions create two levels of poor governance. They increase the likelihood of the negative risks the initiative will mitigate occurring and positive risks not occurring. They also frustrate the positive employees of the organisation by the inertia their prevarication creates. Frustrated employees leave.
Lack of controls is, by definition, an anathema to good corporate governance. What is worse is when controls including policies, performance indicators and reporting are in place, but are selectively ignored. Board members must determine the controls they wish to have in place to manage the upside and downside of organisation wide risk and use them. Tolerating the non-application of controls already in place is, I find, the most common sin of good governance.