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Saskia chairs the audit committee of a government owned company. The board complies with commonly accepted good governance practices and is well supported by a qualified and skilful secretariat. The board are accustomed to getting good marks in their annual performance review and, in five years service, Saskia has not seen any substantive issues raised in reviews. She suspects that a favourable outcome has been a selection criterion for the review consultancy.
Although all board members come to meetings well prepared very little value is added by the board. They generally just review papers (which are excellent) and endorse recommendations (which appear sound).
In a brave moment Saskia asked for, and was granted, the review process to be managed by the audit committee. She fears the board is complacent and just a drag on the company. The senior executives appear to share her feelings. Saskia would like to focus the review on value added by individual directors but she knows some of the members are friends of the Minister and that the Minister’s office receives a copy of the reviews.
What should Saskia do?
The question raised in this case note is very relevant to the current pressures being applied to boards. On the one hand you have organisations like the Australian Stock Exchange issuing corporate governance guidelines that promote boards with a majority of independent directors who act in an oversight role. On the other hand you have the school of thought that directors should have a detailed working knowledge of the company so that they are able to critically examine proposals, develop relevant strategies and understand enterprise risk exposures.
It has been suggested that corporate governance is leaving the era of the leadership by the CEO and entering one of leadership by the board. Boards of successful companies will be those that are able to balance this leadership and independence dichotomy.
What should Saskia do? Well, if its not broken, don't fix it. More may be achieved by coordinating the senior management to develop vision and strategy for the organisation than organising a purge of directors.
See how other practitioners addressed the problem... |
Case Studies