Board members are appointed by shareholders to effectively oversee the company’s management and protect shareholders’ interests. By reviewing and approving the company’s strategy, the board in essence designs what direction the company will take. Additionally, the board is also entrusted by shareholders to monitor the company’s risk management, hold management accountable for its performance, lead the company’s succession planning, and approve budgets, among other things.
The hiring and retaining of competent directors costs companies millions of dollars in annual compensation and remuneration. One can only imagine what the cost of hiring inefficient directors would be? The nearest estimation of such cost should take into account – in addition to the typically inflated remuneration packages paid to directors, the cost associated with missed business opportunities, damage to the company’s reputation, misalignment of strategies with company objectives, financial losses, etc.
To reduce or perhaps completely circumvent such peril, companies subject candidates to intensive scrutiny as part of an exhaustive appraisal process, shortlisting only the best for final evaluation. Against such high stakes, what are the key personal and professional attributes that companies should look for in a potential candidate? And what is the significance of these attributes to companies?
I discuss below a list of key personal and professional characteristics of effective directors, which are equally valid for the public and private sectors. This list represents a strategic set of performance and productivity enablers that empower directors’ success in creating value in the boardroom and beyond.
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Governance in focus
■ Management: Know your requirements before you set up a board
■ Teamwork: The board is a team, and that's how it must work
■ Workplace Doctor: Abu Dhabi firm failing to maintain corporate governance principles
■ Awareness: UAE companies increasingly aware of gains to be had
■ AGMs: When annual meetings become forums for confrontation
■ Virtual AGMs: When the AGM is everything but personal
■ Editor's letter: An issue important to our well-being
■ History: Be good, because investors are watching more closely
■ Poll: Corporate governance in the UAE – have your say
■ Analysis: A good board brings right mix of knowledge and culture
■ Gender equality: 30% Club GCC chapter to boost women numbers on company boards
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General leadership traits represent an indispensable asset that every board member should have. Leadership traits such as charisma, integrity, passion, care, focus, among other qualities, will empower directors to take a more active role in board deliberations and encourage them to question the board on key policy and strategic issues. Among all leadership traits, personal integrity is the most critical of all. In the absence of integrity, the overall governance and dynamics of the board will collapse and no given company policy or legal document can safeguard against what an immoral director might be tempted to do! In such an unfortunate scenario, the company’s corporate governance code will be rendered obsolete and ultimately ineffective in preventing any scams.
Relevant industry know-how, which is cultivated over long years of experience in a particular industry, promotes director’s contribution in the boardroom. A director’s relevant industry know-how can open up doors of opportunities for the company to create new business ventures, expand into new markets and forge new alliances.
Moreover, having outstanding knowledge and expertise in a particular business related area will raise the profile of any candidate. Generally speaking, boards need a portfolio of mixed talent and expertise including financial talents (accountancy, audit and risk management) and other operational and managerial talents including marketing, strategy, IT, etc.
Sound corporate governance knowledge is a critical ingredient for enhancing board effectiveness and ensuring that every board member adds value and adequately contributes to boardroom deliberations. This knowledge entails understanding directors’ roles and responsibilities and staying abreast of all governance related issues and policies in the company. The lack of such basic governance understanding, blurs the board, disrupts board dynamics and the overall board effectiveness will cease to exist.
It’s quite tempting, however, for companies to go after and recruit “superstar directors”– well-known community and political figures serving on many boards, but companies need to assess whether the potential candidate has the time to commit to the company?
Last but not least, board member independence should be high on the agenda of any board that is considering new directors. Independent directors offer an objective perspective that upgrades the overall decision-making process in the boardroom. It’s also considered best practice to have independent directors chair board committees, principally the audit committee.
Fause Ersheid, Senior Corporate Governance Analyst & Researcher, Abu Dhabi Center for Corporate Governance
