REPUBLISHED ON DEMAND 1.1.2021
We can liken an “effective” Board of Directors to a “shock absorber” on a vehicle. It can protect the corporate vehicle from the stresses of poor driving and rough business roads.
We wish you a safer, healthier and more environmentally sustainable new orbit in 2021...
The “driver” is represented by senior management and the internal business environment. The “roads” are the external business environment: applicable laws and regulations, the natural environment, competitors and substitutes, customers and clients, suppliers, technological change, government, and shocks like COVID 19.
Your Board must have the skills, experience, internal “harmony” and “distance” from the driver necessary to objectively assess the quality of the driver and the consequent ability of senior management to avoid unnecessary risks and to harness available opportunities: in good times as well as in times of systemic stress such as those created by COVID 19. The Board must be able to swiftly adjust its “oversight style” subject to its evaluation of the “balance” between the foreseeable demands of the operating environment (on the one part) and the driver's skills, experience, integrity, competence and goal congruence with stakeholder interests (on the other part). “Oversight styles” will exist on a spectrum between “loose” at one end and “tight” at the other. A smart and harmonious Board will seamlessly move to the appropriate spectrum position for the needs of the medium to long term operating context. Its “perception” of those needs will be “capably” refreshed on a “timely” basis.
It must be prepared to challenge “social norms” of "the Big Chief", where necessary, and to control the behaviour of “drunk drivers”. It must detect and/or deter “gross imbalances of power” within the organisation. It must resist the temptation to be seduced with "sweets of office" by senior management and thus be diverted from its “legal duty of care” to the organisation. "Board Capture" must be avoided by resolute focus on the “congruent interests” of the organisation and all stakeholders. It will “credibly referee” both financial and non-financial conflicts of interests via a meaningful “Board Charter”.
The Board must have the capacity to understand the dynamics of the external business environment within which the organisation operates. This allows it to anticipate related foreseeable risks and opportunities and to oversee the deployment of “competent and timely contingency responses” to “unforeseeable risks and opportunities” as ruthlessly demanded by COVID 19. In this way, an effective Board can enhance management's ability to safely and profitably navigate the external operating environment. It can provide a valuable “shock absorber” to management’s “driving”.
Yes, Boards can play a vital role. Sadly, in too many contexts, they far too easily render themselves subject to "Board Capture" by management. The risk of "Capture" is heightened when appointments are politically or personally driven with scant regard for due or fair process: where “connection overrides competence”.
When "Capture" occurs, the "Fat Cat" slur becomes applicable. Then, the Board moves from being a "shock absorber" to a "shock amplifier", making a bad situation worse! When an event like COVID 19 strikes, a “shock amplifier” Board can prove fatal!
Is your Board a “shock absorber” or a “shock amplifier”?
Dr. Omodele Jones, 17 April 2020
This is an update of an article first published on 22 July 2018. The author is Co-Founder & CEO of tech startup GQRDOtCOm Ltd (registered in England & Wales) and operating as GovernanceQualityRatings.com incorporating AuditQualityRatings.com. The views expressed here are his own and do not necessarily represent the views of GovernanceQualityRatings.com.
