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Why do boards fail?

Memory Nguwi

Company boards play a very important role in overseeing the work that management does in organisations. The question that most people ask is: why is it that some boards fail and others succeed?

The reasons why boards fail are many and the weight each one of them carries varies from organisation to organisation. I list below some of the reasons why boards fail.

Lack of information: depending on the relationship between the board and management, sometimes the board is starved of information required for them to lead the organisation. Management can selectively drip feed the board with information. Sometimes this same information is not enough. Sometimes the information is given out to board members only when it is positive. What board members need to know is that they have the right to all the information they require to enable them to ask relevant questions. Without the information, you are setting yourself up for failure. This information includes knowing how much each of the senior people in the organisation earn and whether the earnings are commensurate with company performance and market trends. Check for fairness in the remuneration. Is the distribution showing that equity is the top priority for senior management?

Selecting the wrong people as board members: This is one factor most corporations fail to understand. The success of board members is not based on how glittering their qualifications and experience are. Remember the level of qualification and experience combined only explains 3% of the variation in performance. What it means is that they contribute very little to performance, therefore do not over-rely on them. Look at a solid record of success in their career as criteria for selection. Do they have enough knowledge in their area of expertise? How is their ethical footprint? You cannot hire thieves and expect that they will not steal. If you select a board member with personality defects, no amount of training will cure that. You will be wasting your resources.

Corporate governance training is not the solution: it is not true that boards that fail on governance were not aware of the proper governance procedures. As outlined above you need to select board members with an impeccable reputation for good practice. You will be wasting resources to think that corporate governance training will cure unethical conduct. Research shows that most of the ethical issues in boards can be traced to the personality of board members.
The wrong chairperson of the board: you need a solid leader who can harness and accommodate different views from other board members. If this fails the board will be dysfunctional. A person who can tolerate dissent is an ideal candidate for a board chair.

Failure to question everything: board members bring failure to the board when they fail to question everything. In good Boards, non-executive directors have the freedom to question everything {this include taking their on fellow directors to task, taking management to task when they see something they suspect is not right is taking place.

Failure to put together a solid executive team: without a good executive team, the board will ultimately fail. A candid assessment of each executive team member must be done and the board must be satisfied that they have a good team in place.

The reasons for board failures are many. I have just picked a few. There is plenty of research with further information on why boards fail.

Nguwi is an occupational psychologist, data scientist, speaker and managing consultant at Industrial Psychology Consultants (Pvt) Ltd, a management and HR consulting firm. — www.linkedin.com/in/memorynguwi/ Phone +263 4 481 946-48/ 290 0276 or mobile: 0772 356 361 or e-mail: mnguwi@ipcconsultants.com or visit www.ipcconsultants.com.

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