Importance of board evaluations in Tanzania’s financial institutions

By Peninah Musya

Corporate governance is concerned with regulations, practices, and systems that give organisations direction. Its essence is to ensure that firms strike a balance between the community and stakeholders’ interests when executing their mandate.

Board evaluations, on the other hand, are a function of governance through which boards verify whether members are progressing towards the achievement of goals, meeting expectations, adherence to the law, among other factors. The banking sector role to a country’s economic growth cannot be understated.

Over time, the corporate governance has emerged as one of the most crucial components in the banking sector and the overall financial industry.

The banking sector in Tanzania has seen a lot of development and growth since its inception, with digital banking being one of the most significant areas that has transformed banking operations. With this transformation, board evaluations are set to play a crucial role in steering the sector in the right direction.

Tanzania’s financial institutions can positively benefit from board evaluations if they are properly executed. To begin with, stakeholders must analyse assets and liabilities.

Examining these factors will help to establish the position of the institution and weigh the potential risks that lie ahead. Further, it can also inform decisions such as increasing deposits to raise capital access. This is a proactive measure to ensure that the institution protects itself against a liquidity crisis or prevent the likelihood of such an occurrence.

To conduct board evaluations that add value, financial industry boards should be properly constituted, and board members appointed on merit. This means that boards should have a composition, that brings different individuals with their unique skill sets, experience and trainings and diverse backgrounds from the financial services industry. This background is critical in guiding the institutions navigate critical decisions and achieve institutional goals.

Furthermore, a more diverse board will help guide executives in driving the institution’s strategy and provide adequate checks to possible minimise errors which could negatively impact financial institutions.

Financial institutions in Tanzania stand to benefit from periodic board evaluations as these could help equip institutions with right cadre of professionals and therefore strengthening their institutional human capital.

For instance, if board assessments reveal skills gaps that could impact realisation of business objectives the organisation’s executives will be able to take an immediate decision to upskill and address these gaps. Additionally, involvement of the board of governors in executive appointments will ensure that the institution appoints the best-suited candidates and clearly spell out their duties, expectations, and performance targets.

After appointment, board appraisals should be conducted on a regular basis to reveal executive and team’s strengths and weaknesses, hence identifying gap areas that need to be improved. Individuals and teams that are aware of their capabilities can collaborate and find solutions to the challenges affecting them, and in the long run, improve their performance at work.

Additionally, a robust framework that accommodates regular board evaluations, allows the management and the board to have a proper succession plan to cater for any eventual leadership transitions.

Board evaluations are also crucial in conflict management in organisations. The policies that govern board evaluations require independent handling of all disputes. Thus, embracing corporate governance through board evaluations in Tanzania’s financial institutions allows for procedural conflict management and timely resolution.

In conclusion, the concepts of corporate governance and board evaluations are intertwined and work together to improve systems. Tanzania’s financial services providers must integrate these concepts into their operations to gain the numerous advantages. For instance, corporate governance practices outline regulations and acceptable practices that ensure the smooth running of financial institutions.

As a result, professionals are aware of what is expected of them and come up with methods to improve performance. On the other hand, board evaluations help in having board members whose values and work ethics are aligned to organisational goals.

Most importantly, the process of board evaluations is guided by corporate governance regulations. Hence, stakeholders in Tanzania’s financial institutions must accept and create awareness to relevant stakeholders on the need for enhanced corporate governance and board evaluations.