When we talk about the board of directors, we are referring to an elected group of individuals that represent shareholders in a company. The board is a governing body that typically meets at regular intervals to set policies for corporate management and oversight. In Ghana, both public and private companies are mandated to have a board of directors. In the generic sense, the board of every company makes decisions as a fiduciary on behalf of the shareholders. Issues that fall under a board’s purview include the hiring and firing of senior executives, dividend policies, options policies, and executive compensation. In addition to those duties, a board of directors is responsible for helping the company set broad goals, support executive duties, and ensure that the company has adequate and well-managed resources at its disposal.
Conceptualizing what board of directors does is a bit complex, exacerbated by the ongoing evolution of a board’s legal duties and societal expectations. Management discipline has highlighted the real and tangible influence of boards of companies. Early attempts at defining board roles emphasize the differential conceptualization of boards by different disciplines. Practitioners have identified three key roles; as a co-operative mechanism accessing resources vital to the organization; as boundary spanners; and enhancing organizational legitimacy. Boards link the organization to the external environment, coordinate the interests of shareholders, stakeholders and the public, control the behavior of management to ensure the organization achieves its objectives, formulate strategy, maintain the status quo of the organization and support management. Supervising management and protecting shareholders are seen as central to what boards do. This is driven by directors’ fiduciary responsibilities which combine with the theoretical ascendency of agency theory.
The Board of directors has a dual mandate. These include advisory and oversight responsibilities. With advisory responsibility, boards consult with management regarding the strategic and operational direction of the company. Regarding their oversight responsibility, they monitor company performance and reduce agency costs. Effective boards satisfy both functions. The responsibilities of the board are separate and distinct from those of management. The board does not manage the company, rather, they approve the company’s corporate strategy, test business model and identify key performance measures. They identify risk areas and oversee risk management, plan for and select new executives, design executive compensation packages, ensure the integrity of published financial statements, approve major asset purchases, protect company assets and reputation, represent the interest of shareholders and ensure that the company complies with laws and regulations.
Boards are expected to be independent. They are obliged to act solely in the interest of the company. Every board is presided over by a chairman, who has the responsibilities of setting agenda, scheduling meetings and coordinating actions of committees. Decisions are made by majority rule by relying on materials prepared by management. Not all matters are deliberated by the full board. Some are delegated to subcommittees. Committees may be standing or ad hoc, depending on the issue at hand. All boards are required to have audit, compensation, nominating and governing committees. On important matters, the recommendations of the committee are brought before the full board for a vote.
Considering the volume of responsibilities tied to the board and the expertise required of them, it is very important that Board’s structure and composition are carefully evaluated if it is to fulfill its role and live up to shareholders’ expectations and all other stakeholders as well. To get the best results possible, it is important to choose from a group of diverse and experienced individuals who are not involved in the management of the organization. The Board should be of the correct size and have the best mix of skills to ensure its optimum effectiveness. The basic responsibility of the Board of Directors is to exercise its business judgment to act in what each director reasonably believes to be in the best interests of the company and its shareholders.
The structure and powers of certain boards are determined by the organization’s bye-laws. These bye-laws can set the number of board members, the manner in which the board is elected, and how often the board meets. While there is no set number of members for a board, most range from 3 to 31 members. Some analysts believe the ideal size is seven. It is prudent for every company to constitute its board of directors in an odd figure, to aid split votes during the determination of consensus on decision making. It is worth noting that the board of directors is a representation of both management and shareholder interests and include both internal and external members. Most companies use insider and outside directors as board members. An insider director is a member who has the interest of major shareholders, officers, and employees in mind, and whose experience within the company adds value. The outside directors are also known to be independent directors. These types of directors are not involved in the day-to-day inner workings of the company. These board members are reimbursed and usually receive additional pay for attending meetings. Ideally, an outside director brings an objective, independent view to goal-setting and settling any company disputes. It is considered critical to strike a balance of internal and external directors on aboard.
In addition to its general oversight of management, board and its sub-committees also review and approve the company’s key objectives and strategic business plans and monitor implementation of those plans and the company’s success in meeting identified objectives, review and approve the company’s financial objectives and major corporate plans, business strategies and actions. Every board should provide advice and oversight regarding the selection, evaluation, development and compensation of senior management. It is their responsibility to oversee the company’s risk management and mitigation activities and review and monitor the administration of the policies and procedures to safeguard the integrity of the company’s business operations and financial reporting and to promote compliance with applicable laws and regulations.
Board composition is a significant contributing factor to the performance of a board of a company. It is crucial for an organization to get the right mix and balance of people to sit on its Board. It is important to note that every company is different and therefore each board needs to determine its composition based on its unique circumstances. Organizations should look to good corporate governance practices for further guidance when considering what their optimal board composition is. In terms of good corporate governance practices, factors such as size, the balance of power, independence, diversity, skills and attributes, and rotation should also be taken into consideration when determining the optimal composition of aboard.
When determining the requisite number of directors to be appointed on board, the appropriate mix of knowledge, skills and experience, including business, commercial and industry experience, need to govern the appointing authority. It is recommended that every board composition should include a Chartered Accountant, a Lawyer and an industry expert. These three professionals should form the core of every board before members with diverse expertise are appointed also.
Chartered Accountants help build a nation and they play key roles in the economy and finance-related concerns in the nation. Their expertise knowledge is required in every area. Chartered Accountants’ roles are important in nation-building, especially in the prevention of corruption, the window dressing of financial statements and detection of frauds in companies and organizations. A nation grows only after the end of corruption. Chartered Accountants help to minimize corruption by following rules and regulations and by creating awareness in people about wrong practices and their penal consequences. The inclusion of a Chartered Accountant in any board is extremely helpful since such a professional could analyze and interpret the financial reports and budgets of companies. Any board of a company without a Chartered Accountant creates an avoidable vacuum of prudent financial analysis of that entity. It is no wonder that shareholders and stakeholders heard regular mention of falsified financial statements of some of the defunct banks in Ghana.
The need for a lawyer for businesses arises from the fact that there are hundreds of laws for businesses that need to be followed and each industry will have its particular regulations and rules. The entire board may not be unaware of all the laws prevailing in their industry. Apart from the laws of the land, there are laws for the local level and that, at times, can overlap or even contradict each other. The laws are never constant and are continuously evolving in small and subtle ways that can cause an organization to suddenly be out of compliance with the law even though the lines of operation have not changed. This is done to accommodate changes and new requirements of the ever-changing economy and market environment. Keeping track of all these changes can be a daunting task that business owners cannot handle by themselves. The presence of lawyers in an organizational set-up could be beneficial to the operational activities of a business entity. That is why practitioners recommend lawyers to be part of every board.
Other professions may be required depending upon the industry in which the organization operates. For instance, engineering and operations management represents the most important level of management in an engineering organization. The quality of products should also be provided timely and with the lowest possible expense. This is exactly what engineering management is about. Engineering and operations management provides an understanding of planning techniques and methods, organization and management of procurement, production, selling and distribution processes, as well as service provision, quality management, projects, resources, operations improvement, operations strategies and innovations. To enable a company in the engineering industry to operate optimally and perform the afore-mentioned functions effectively, and to juxtapose the efficient delivery of its functions, there is a need to include a competent engineer on the board of such a company.
Every organization has its operational function, because every organization, whether it is profit or non-profit oriented, provides some kind of a product or service. In much the same way, a company in the financial sector may need more specialized skills in finance on its board to fully understand the business and its environment. To be specific, if the business is about banking, the composition of such a board should include a Chartered Banker, whereas, in an insurance business, the company needs a Chartered Insurer. These have been the missing acts of most companies in Ghana, especially those in regulated businesses. A board with the requisite expertise influences its effectiveness, as such, each board needs to consider its optimum size taking into account the above guidelines to ensure the effective and efficient functioning of the board. The governing body should comprise a majority of non-executive members, most of whom should be independent. The balance of power within the board should allow for positive interaction between the board members and also ensures the diversity of views amongst them. Ensuring a mix of executive and non-executive directors on boards ensures that decisions made by the board takes into account both operational views and affects as well as independent views and judgment. There must be a policy evidencing a clear balance of power and authority at the board level, to ensure that no one director has unfettered power of decision making.
The concept of independence of the board often brings with it some confusion and misunderstanding. The governing body should comprise a majority of non-executive members, most of whom should be independent. Non-executive members of the governing body may be categorized by the governing body as independent if it concludes that there is no interest, position, association or relationship which, when judged from the perspective of a reasonable and informed third party, is likely to influence unduly or cause bias in decision-making in the best interests of the organization. The governing body should consider holistically, and on a substance-over-form basis, when assessing the independence of a member of the governing body for purposes of categorization. It is further recommended that an independent non-executive director should be independent in fact and in the perception of a reasonably informed outsider. Although the independence of mind is essential, perceptions of independence are also important. With regards to conflicts of interests, each member should submit to the governing body, at least once a year or whenever there are significant changes, a declaration of all financial, economic and other interests held by the member and related parties and all members should be required at the beginning of each meeting, to declare whether any of them has any conflict of interest in respect of a matter on the agenda.
The governing body should promote diversity in its membership across a variety of attributes relevant to promoting better decision-making and effective governance, including a field of knowledge, skills and experience. The Companies Act, 2019 (Act 992) does not have any specific requirements about the skills, qualifications or attributes required of a director, but rather provides for what may disqualify or render a person ineligible from serving as a director. As such consideration should be given to established guidelines for best corporate governance practices. Directors should be individuals of integrity and courage and have the relevant knowledge, skills, and experience to bring judgment to bear on the business of the company. In situations where directors may lack experience, detailed induction and formal mentoring and support programs should be implemented and every board should ascertain whether potential candidates are competent to be appointed as directors and can contribute to the business judgment calls to be made by the board.
Before nominating an individual or when looking at the skills and suitability of a proposed candidate, the appointing authority should consider the collective knowledge, skills and experience required to fill the gap on the board. The requirements of every member of a board should include apparent integrity, skills and capacity of the individual to discharge his duties, the competency of the individual to serve as a director and whether the proposed candidate meets the appropriate fit and proper criteria. It is of great significance and impact on the organization to have the right directors sitting on the board. These directors should be aligned with the organization’s ethical standards and values as well as having suitable skills and knowledge.
To conclude, the directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of their companies’ shareholders and all other stakeholders. It is also the policy of the board that the composition of the board at all times adhere to the standards of independence. Each director should possess a combination of skills, professional experience and diversity of viewpoints necessary to oversee the company’s business. Each director should be able to dedicate sufficient time to ensure the diligent performance of his or her duties on the company’s behalf, including attending all board and applicable committee meetings. In general, the board does not have a policy limiting the number of other public company boards of directors upon which a director may sit. However, the appointing authority should consider the number of other boards of directors, on which a prospective nominee is a member. Although no law imposes a limit on companies’ directorships, it does recognize the substantial time commitments attendant to membership on the board and expects those directors devote all such time as is necessary to fulfill their accompanying responsibilities, both in terms of preparation for, and attendance and participation at meetings
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