Please note that this pertains to South African Legislation, the King Requirements, and Best Practice.
So today we start looking at some of the specific risks that most companies face and therefore what, in particular, the Board of Directors should be looking at.
Firstly, let’s look at some of the key questions that entrepreneurs should be looking at in terms of themselves. The reality is that in order for a company to run effectively and indeed be compliant, they have to be headed up by a Board of Directors. The Board of Directors is responsible for directing, governing, and being in control of the company. Some of the questions that they should be asking are (but not limited to):-
– Does the company have the right people in the right place? This would be both in terms of those who lead as well as those who manage the business from a directorship perspective as well as senior management or even HOD’s (Heads of Department).
– Whilst the Board of Directors are ultimately responsible they cannot do everything themselves and realistically they need to step out of the way in terms of the day-to-day management of the company.
The next question therefore is, are the Directors independent of management?
– In the instances where external assistance is needed and the Board of Directors can and do outsource expert advice and where they do, do they actually make use of that advice?
– Sometimes it is better to go outside of the company and sometimes it isn’t. The reality is that the Board of Directors needs to make a decision as to whether they would get greater value from internal or external assistance. This needs to be evaluated. Remember that this is in the best interests of the company, so egos should be checked in at the door.
– The duties of the Board of Directors are onerous – there is all the compliance stuff and all the leadership stuff and getting the business in and finding the deals and paying the bills and looking after the staff stuff and the reality is that they cannot control everything all of the time. So, has the Board of Directors delegated sufficiently to committees or sub-committees or even to HODs directly?
– What about the Board of Directors and Committee charters? Firstly do they have a charter and if so is it updated on a regular basis to ensure that it still meets the requirements of the company as well as any new legislation? Not meeting new legislation requirements could prove to be very costly.
– How are the sustainability issues dealt with? Is there a committee or sub-committee set up to handle them or are they handled by a committee that is already set up and if so, which one? Is it the right one? To have tasks split between the sub-committees or to have one sub-committee set up specifically to deal with the sustainability issues is a decision that will need to be taken.
– There must be a measurement structure in place to ascertain whether the current roles and structures of the subsidiary Boards are adding value. This should be monitored on a regular basis and adjusted accordingly.
– How are the Board of Directors incorporating strategy, risk, performance’ and sustainability into their decision-making philosophy? How is this managed and measured?
– What about the directors themselves, are they spending their time effectively and efficiently in meetings and dealing only with material issues? Again, how is this being monitored and measured?
As you can see from the level of detail in this one section of the requirements, the level of responsibility and accountability is huge.
Next time we will have a look at the Directors responsibilities around the governance of risk.