Effective, engaged boards remain a necessary lever for company success

Today's directors must be more engaged, shrewd, enterprising, more numerate and more technically competent than ever. FILE PHOTO | SHUTTERSTOCK    

By IBRAHIM KITOO More by this Author

The last two decades are littered with examples of challenged and even disgraced corporations. Boeing, Enron, Kmart, and the

Weinstein Company, to mention but a few.

There are Kenyan examples too. Each round of unflattering headlines about corporations and their leaders prompts a set of reasonable and justifiable questions and opprobrium: What exactly are the boards of directors doing or not doing?

By helping to create economic growth, corporations contribute to the betterment of society in many ways. They, among other benefits, create jobs, contributing to workers’ livelihoods and counteracting poverty.

They also provide a tax base that contributes to the fiscal health of governments. Just as corporate success lifts society, corporate failure has the potential to sap its vitality.

To the average person, the board’s job might seem unclear or even superfluous. Board members are seen as having all the upside – prestige and board fees – and very little downside. The opposite is actually true.

While management operates the corporation on a day-to-day basis, in the words of Dambisa Moyo, it is the board’s responsibility to look on from 40,000 feet.

At its meeting, the board should ask questions about whether the leadership is innovating enough, hiring the right people, and building the best management team, whether the corporation is growing its customer base and beating the competition and whether its operations are aligned to the latest corporate strategy.

The board must look beyond compliance and ticking the boxes and work towards securing a competitive advantage.

The board should be even more actively engaged when the corporation is not doing well, otherwise, it would be a case of Nero fiddling as Rome burns.

The Kenya Companies Act, 2015 expressly provides that in executing their responsibilities and duties directors must endeavour to promote the success of the company.

This encompasses putting into consideration the corporate value or long-term success of the company and other stakeholder interests.

They must exercise independent judgment in their execution of duties; apply reasonable care, skill and diligence to their tasks and avoid conflict of interest.

In the words of Jim Leng, former Chairman, Corus Group, the day of the gifted amateur is long gone. Board membership is not about receiving hefty allowances and/or remuneration for mediocrity.

It is not about filling the boardroom with people who will be rubber stamps or pliable tools in the hands of executives.

Today's directors must be more engaged, shrewd, enterprising, more numerate and more technically competent than ever.

In the current environment defined by volatility, uncertainty, complexity and ambiguity (VUCA), we need corporate boards that deliver; boards with purpose; visionary and agile boards ready to promote corporate success, embrace stewardship, sustainability, accountability, transparency, integrity, prosperity and the public good.

The writer is an Advocate of the High Court of Kenya & Certified Secretary Specialising in Corporate Law and Corporate Governance.

Email: ibrakito@gmail.com