Better Boards: The Much Needed Lever For Corporate Success and Competitive Advantage

By: CS. Ibrahim Kitoo

An Advocate of the High Court of Kenya & Certified Secretary Specialising in Corporate Law and Corporate Governance.

Email: [email protected]

Introduction

The last two decades are littered with examples of challenged and even disgraced corporations. Boeing, Enron, Kmart, WorldCom, Parmalat, Tyco, the Weinstein Company, to mention but a few. The Kenyan examples are just but many to mention. 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?

Benefits of good corporate governance

Yet for every corporation attracting headlines for the wrong reasons, there are numerous others quietly thriving as their boards and management strive to do the right thing. By helping to create economic growth, corporations contribute to the betterment of society in many ways. They among other benefits create jobs, contributing to worker’s livelihoods and counteracting poverty. They also provide 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.

Critical Role of the Board

To the average person, the board’s job might seem unclear or even superfluous. Board membership is often seen as holy grail with board members been seen as having all 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 forty thousand 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, and whether the corporation is growing customer base and beating competition and whether its operations are aligned to the latest corporate strategy. The board must look beyond compliance and ticking the boxes but work towards securing competitive advantage. The board should be even more actively engaged when the corporations is not doing well, otherwise it would be a case of Nero fiddling as Rome burns.

Director’s Role under the Companies Act, 2015

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 interests.

Conclusion

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 public good.