Prerequisites for building quality boards of directors – 1

Building on my statement in one of my previous articles, where I highlighted that quality board of directors is a separate topic that requires its own publication, this series introduces practical steps that organisations can follow to appoint, develop and sustain productive, responsible and accountable boards of directors.

Strong governance has become essential for organisational survival in both the public and private sectors. Whether in financial institutions, other enterprises, or non-profit entities, the quality of board leadership determines not only performance but also integrity, accountability and public trust.

Productivity, responsibility and accountability are interrelated qualities that define an effective board. A productive board delivers positive and measurable outcomes. A responsible board remains answerable for the matters it oversees. An accountable board takes ownership of its decisions and their impact on stakeholders.

In fulfilling these roles, boards of directors provide oversight, formulate strategy and establish organisational policies. While commonly known as boards of directors, in some entities such as trusts and universities, the governing bodies may be referred to as councils or boards of trustees.

These principles (productivity, responsibility and accountability) apply across various organisational forms, particularly where ownership and management are separated.

Organisations that are the most relevant to this discussion are those whose ownership is separated from management and boards are appointed by shareholders to oversee managerial performance. Such arrangements are common in both private and state-owned enterprises.

Banks, however, exhibit a distinctive structure. While they may not be public entities in terms of ownership, the majority of their resources, particularly customer deposits, originate from the public.

For this reason, banks are best regarded as public institutions in function and responsibility, even when privately owned.

Beyond profit-oriented enterprises, other types of organisations such as trusts, community organisations and non-governmental organisations (NGOs) that work for the public good can also benefit from the principles discussed in these articles.

Likewise, the methods and frameworks proposed here may be adopted by other organisations seeking to strengthen effectiveness and quality of their boards, even they do not fit precisely within the categories highlighted earlier.

While reflecting on how to write these articles, I felt it would be valuable to share insights I gathered from several chief executives, managing directors and senior managers I have been interacting with regarding quality of boards of directors.

One CEO of a state-owned entity that was operating without a board confided that he preferred not to have one appointed, having learned from peers that some board members tend to neglect strategic matters and instead focus on trivial issues, often causing unnecessary delays in implementing important initiatives.

Several other CEOs and managing directors shared that they often face challenges with certain board members, who make decisions based on personal or external interests, rather than prioritising the organisation’s objectives and long-term sustainability.

Some even interfere with day-to-day operations without management’s consent or prior communication such as conducting unapproved inspections or questioning staff in ways that undermine established governance procedures.

One senior manager recalled attending a board committee meeting where, after presenting his report, completely out of the blue, a board member who had no substantive questions, asked about his personal relationship with another senior member.

This is a good example of how board members can lose focus on strategic and ethical boundaries.

There are scenarios where some board members insist on visiting all operational units of an entity every year. One wonders, in a situation where an organisation has more than 200 units, does that mean board members become permanently occupied in the institutions that they were supposed to provide strategic direction and oversight for?

I once learned from a colleague about an interesting situation in their organisation where a chairperson of the board occasionally interacted directly with senior managers, often without the knowledge of the CEO to arrange for him unplanned visits to remote operational areas.

In some instances, the chairperson insisted that the CEO facilitate official trips to regions where he also had personal matters to attend.

Although such actions were justified under the pretext of fulfilling oversight responsibilities, it appeared that underlying motive was an opportunity to earn travel allowances rather than address genuine governance issues.

In the next instalment of this series I will dwell on issues related to boards of directors that engage in non-strategic matters and those who adhere to strategic issues. I will then discuss methods to recruit board members.

Dr Muhsin Salim Masoud is a seasoned banker and academic, who has also served as managing director of the People’s Bank of Zanzibar and Amana Bank. [email protected]