Who rules when both the management and the board are on a payroll?
Certainly, management having the advantage of running the day-to-day affairs of the entity, has greater knowledge of the issues impacting the entity, but the Board also has knowledge about the sector as a whole and might as well be aware of the associated industry and the operating environment, owing to the diversity it could represent.
The board is entrusted governance of the entity as part of their fiduciary duties representing the owners, but if the Board resigns itself to simply agreeing or approving what management takes to it, it’s not governance that’s being provided, it’s meeting attendance.
Don’t we all know why meeting attendance is important? For fee of course!
Let’s look at the signs of how such meetings proceed:
| Management | Board |
| Management takes a matter to the Board alongside its possible solutions. | Board neither understands the matter nor makes any effort to gain an understanding |
| Management sells its favored solution | Board agrees and approves |
| Management asks questions amongst itself and provides answers | Board looks on |
| Management encroaches upon Board’s responsibility to conduct the meeting proceedings | Board concedes space and let’s management take over |
| Management takes its growth and diversification proposals to the Board and highlights its choices | Board selects the management’s choice and approves |
| Management tries to shoot down the significance of an issue or audit finding(s) reported | Board keeps mum; makes no direct inquiries, as if the management’s viewpoint is already taken |
| Management discusses and even deviates from the responses it has already given on findings | Board agrees with the management’s viewpoint |
| Management tries to convince the board of its efforts | Board praises the management’s efforts more than the management expects or asks for! |
So now you would be like, why need a Board then? Compliance requirements certainly!
Even if a Board is such a waste, it’s imperative to have it, because the statute says so. The statute does not allow a distinction on how the composition of the Board should determine its business and proceedings; for if a Board is entirely composed of representatives, what and how it should govern, report and assess its own performance.
These theatrics do not just tell us all that goes in the meeting room; they also guide us about the events leading to the meeting; behind the scenes stories and deliberations. Auditors are always expected to understand these to be able to read between the lines.
I call these theatrics, because they only have a cinematographic value, nothing of substance ever comes out of such meetings, in fact, no stakeholder value is added by such Boards and Managements alike. The only value added is economic…… for the officials involved!
Now let’s have a look at how the Boards should perform if they intend to matter:
- Meetings are conducted by the Board Chair; management expresses its viewpoint only when asked.
- Board members are well versed in the meeting agenda and come prepared to ask questions.
- Board prioritizes the matters brought before it and gives instructions.
- Board reviews the probable solutions proposed by management but gives its own instructions.
- Board is future oriented; ensures opportunities are seized or created.
- Board gives the growth and diversification options and direction.
- Board reviews the strategy and focuses on its implementation.
- Board timestamps all actions and keeps a check on adherence with these.
- Board asks for all data and information to be independently reviewed by internal auditors.
- Board ensures that internal auditors and external auditors are adequately resourced and facilitated and their strategies aligned with the business requirements.
- Board establishes direct communication channels with the auditors.
- Board meets up with the auditors in management’s absence as and when needed.
- Board encourages direct reporting of significant complaints to it, especially those pertaining to control environment, through the whistleblowing channels and auditors and ensures all complaints are handled, resolved and closed.
- Board rewards nonoccurrence of incidents, not non reporting of incidents and has mechanisms in place to monitor compliance with this philosophy. Non reporting instances should reflect in executives’ performance appraisal.
- Board reviews the performance of all senior management based on data/information that has been evaluated independently.
- Board builds trust amongst the whole entity.
- Board has its performance reviewed externally according to a formally established criterion.
- Board ensures that for all matters governance; only it matters!
A representative board may also simply take a leaf from an entrepreneur dominated board if it intends to leave behind the legacy of a success story and not that of oblivion!
For the auditors reporting to a representative board; test the waters before diving right in by reporting significant issues on management’s stewardship. But if you’ve got nothing to lose, you may give a shot to your reporting responsibility.
As for the opening question, the answer is “Absurdity”.