8 minute read
CORPORATE GOVERNANCE
by kwedamedia
TO EVALUATE OR NOT TO EVALUATE, THAT IS THE QUESTION!
It has long been accepted that a legal person, an entity or organisation of whatever nature, is completely dependent on its human counterpart to look after its affairs.
It is for this reason that the law places a significant onus on the shoulders of these human persons, collectively referred to as the governing body or board, to take particular care in the way the affairs of the organisation are managed.
Considering not only the significant personal consequences for these individuals if they fail to meet the expected standard, but also the dire consequences for the organisation and its numerous stakeholders, including employees, suppliers, shareholders and society at large, one will think that the members of a governing body would want to use all tools at their disposal to ‘sharpen their saws’, so to speak. Not so, it seems.
Having led and facilitated numerous board performance evaluations for several years now, I am often still amazed by the apparent lack of enthusiasm and engagement on the side of many participants in the process. One is left with the distinct impression that it is not a case of ‘leading the horse to water’ but more of ‘dragging the horse.’
This has forced me to do some serious introspection in an honest attempt to understand the possible reasons for what I perceive to be a short-sighted approach. An immediate thought that jumps to mind is the fact that doing regular board performance evaluations has been a key recommendation of many of the governance codes adopted throughout the business world. This includes the various King Reports that have seen the light in South Africa, the latest being the King IVTM Report on Corporate Governance for South Africa.
Even with the best intent in the world, these codes are often still misunderstood and approached with a tick box mentality and with little appreciation for the value it can bring if appropriately applied. Undertaking an evaluation of the performance of the governing body is thus done by many because there is some regulator, such as a stock exchange, or other key stakeholder, such as a minister in the role of shareholder representative in a state-owned entity, who demands disclosure of the evaluation process and outcome.
No wonder the participants in the process are less enthusiastic about the idea and, in the absence of any such interested party, the idea of doing an evaluation is very quickly dismissed. Just ask those responsible to provide governance guidance to boards of large private companies.
But, even if there is general acceptance of the idea that an evaluation of the performance of the governing body could be of real value, one of the main drivers behind the reluctance seems to be the many frustrations experienced with the actual process and its outcome.
The reasons for this can be numerous. In an attempt, however, to re-energise those filling seats in a boardroom to constructively pursue the idea of a performance evaluation with vigour and enthusiasm, whatever the nature of the organisation, allow me to share some ideas and tips based on my many years of hard-earned experience.
Understanding the why
If you do not know what the ultimate objective is and what it is you are aiming for, you are doomed from the start. This is true, not only in respect of an evaluation of performance, but also in respect of a basic understanding of the role of a governing body and its individual members. In my experience, it is often the latter understanding that is sorely lacking, resulting in the potential value of an evaluation of performance being completely hidden from the view of those involved. This is a tragic, but true, state of affairs in many organisations, both in public and private sectors.
Tips:
Ensure that the members of the governing body are fully informed and aligned as to the role and function of the governing body and each individual member. Set clear expectations that can ultimately be measured, both in respect of the type of governing body that is required as well as the contributions to be made by all involved, even beyond the boardroom. Agree on the purpose of the specific performance evaluation that can in fact vary from year to year.
Communicating the why and the how
Assuming that all involved fully understand the why and the how is a dangerous assumption, as are most assumptions. A performance evaluation can be done in many different ways, depending on what the purpose is. Who will be assessed, what will be assessed and how it will be assessed are critical questions that need to be comprehensively answered and communicated to all involved to ensure alignment and buy-in.
Tips:
Start early on with the process to avoid a last-minute rush and lack of proper thought, engagement, and communication. Ensure alignment between all involved on the who, what and how questions, not only to limit the risk of misunderstanding and ultimate frustration, but also to secure ownership of participants through a feeling of co-creation.
Using a fit for purpose mechanism
If you don’t know where you are going, any road will take you there. An old cliché but very much appropriate and relevant in this context. In my experience, the majority of governing body members loath the idea of having to complete numerous questionnaires with numerous questions presented in a not so user-friendly format.
Even more important, where the integrity of the mechanism is not fully trusted by participants, there may be reluctance to provide honest and candid responses.
Tips:
Confidentiality is non-negotiable and, whatever the mechanism
being used, should be a key attribute. Obviously, if the decision is to have an honest and open communication session with the collective to interrogate and discuss performance, participants will not have the benefit of anonymity and a healthy dose of maturity and EQ in the boardroom will be essential.
While it is not necessary to always make use of independent thirdparty service providers, this could result in a more appropriate and value adding outcome as input is assessed and interpreted in an objective manner, limiting the risk of natural biases skewing the results.
Not using the same mechanism year after year may also help in sparking a level of interest and engagement.
Leading by example
While governing bodies are often meticulous in their monitoring of executive performance, there seems to be a general idea that the governing body is exalted above similar scrutiny. This double standard is in my humble opinion evidence of a lack of strong moral leadership. In some instances, the performance of the governing body and its members may in fact be evaluated, but there is little if any action following the evaluation to address the outcome and areas of non-performance in particular. This is when we find a repeat of the same issues year after year.
Tips:
While the company secretary or other governance advisor to the governing body may take a lead role in initiating the evaluation and recommending the process, it should ultimately be a matter
for the governing body as whole, aptly led by its chair. Sincere commitment and positive engagement from both the chair of the governing body as well as the leader of the executive team, be it the CEO or MD, is a definite encouragement and energiser for all involved.
As an important part of the leadership of the organisation, members of the governing body setting the example of being willing to do honest and, sometimes, brutal introspection is key in creating a performance driven culture throughout the organisation.
Ensure that an appropriate action plan is produced and monitored that facilitates a clear path forward in addressing non-performing aspects identified as part of the evaluation.
I have no doubt that there are other very valid reasons that many members of governing bodies today still resist the suggestion of an evaluation of their performance, be it as a collective or individually. Probably sufficient material to write a book that could be categorised as a ‘thriller.’
However, notwithstanding the many reasons not to evaluate, I remain a firm believer in the opposite approach. Having personally witnessed the strengthening of the performance of governing bodies following an evaluation of its performance and that of its members, I am convinced that an evaluation process that is properly understood, designed and executed should be a no-brainer, with all due respect. Add to that effective and ethical leadership and you have a winning formula.
