The Role of the Board in Ensuring Sound Corporate Governance

The board of directors is the corporation’s governing body. By law, the board is vested with authority to manage the corporation’s business and affairs, and the board’s members have a fiduciary responsibility to act in the best interests of the corporation and its shareholders. Boards are thus collegial bodies in the traditional sense that their members share authority and responsibility and have both individual and collective accountability.

The main challenge for most Boards is not in the understanding of their responsibility regarding providing this oversight. It is in execution. The most critical question that Boards ask themselves is how they successfully implement and incorporate corporate governance in the organisation. The following steps may assist in achieving successful implementation:

1. Incorporating Corporate Governance in the organisation’s strategy and the business model. ?This goes beyond just alignment. The organisation’s core purpose, its risks and opportunities, strategy, business model, performance and sustainability are to be appreciated by the board. As explained in the King IV Code on Corporate Governance, the board has to further appreciate that these elements are not stand alone. They are inseparable elements of the organisation’s value creation process. This outcomes-based approach means setting key performance indicators and measures that speak to these elements within the organisation’s strategy. Monitoring the performance of those KPIs and continuously reviewing them will assist the Board not to lose sight and focus on corporate governance implementation.

2. Continuous review of the Corporate Governance Framework is also critical to the Board’s effective implementation of Corporate Governance in the organisation. The Board is able to identify global, industry and local market changes and developments and use the review as an opportunity to integrate those changes in the organisation’s Corporate Governance Framework.

The King IV Code on Corporate Governance states that the governing body/board should serve as the focal point and custodian of Corporate Governance in an organisation. This is encapsulated in the organisation’s business cycle. It is responsible for steering and setting strategic direction, approving policy and planning, overseeing and monitoring as well as ensuring accountability.

3. Compliance can be expensive for an organisation if not done right or implemented well. Boards now more than ever, need to be proactive rather than reactive in ensuring that the organisation complies with applicable laws, codes, standards and non-binding rules in a way that directs the organisation to being an ethically good corporate citizen. To avoid inconveniences and business interruptions, the board must intentionally approach compliance as a critical component of good corporate governance as the lack of compliance may lead to huge penalties and fines for the organisation and in some instances, to the directors themselves.

4. An effective and efficient board is characterised by strong governance structures and processes. The board should ensure that the structures and processes in place supports it implementation of corporate governance in the organisation. This speaks to the delegation of authority through its committees and other means. Also, the board has to make sure that it is constituted in such a way that it is able to effectively discharge its mandate as a board. Therefore, the composition of the board, in terms of skills, experience, diversity is critical for the performance of the board. The board should continuously evaluate or assess its performance and use the feedback/results to continuously work on itself to improve. A strong, well-informed, and dynamic board is a positive ingredient towards the success of the organisation.

Article by:

Mpho Moletlo Kgosietsile, FCG

Managing Director, Wise Leadership (Pty) Ltd