The board’s role in corporate governance
The board is the top most decision-making body. It is accountable to the shareholders or the owners of the business. Its primary roles are two-fold; provide effective oversight and going concern.
The oversight role entails effective enterprise-wide risk management and compliance. The board must ensure the organization is sustainable for the long term. Any anticipated events or risks which could take place and stand in the way of the organisation growth must be proactively identified and taken care of. Take the case of MTN Nigeria scandal.
In 2010, Nigeria Federal Government through their communications commission required all Mobile Network Operators (MNOs) to register all their subscribers under section 20(1) of the Telephone Subscribers Regulation Law (TSR). However, MTN Nigeria was found having not having met the requirements of the law following a compliance audit which disclosed that over 5.2 million customer lines where on the network without having been registered and had not been deactivated upon the expiry of the notice period. As a result, Nigeria Communications Commission fined MTN a sum of US $ 1,000 for each subscriber SIM number that was unregistered and active; giving the total penalty to US $5.2bn.
Reports indicate that high-profile resignations followed — the chief executive officer, Sifiso Dabengwa, the Head of Nigeria Operation, Micheal Ikpoki and the Head of Cooperate Affairs, Akinwale Goodluck being replaced with Phuthuma Nhleko, Ferdi Moolman and Amina Oyegbola as new chairman, managing director and Head of Corporate and Regulation respectively. Following a concerted negotiation process by the new leadership, the fine was reduced to US $3.2 billion.
That is the cost of bad corporate governance. When the Board fails in one of their primary roles of oversight – risk management and compliance – the impact can be dire on the business as it happened to MTN Nigeria. Imagine the impact of US $3.2billion on the company’s market capitalisation, profitability and shareholder value. To achieve this role, the board uses a tool called risk policy, which provides for the formulation of enterprise-wide risk management strategy and clear articulation of the company’s risk appetite. Risk appetite defines the amount of risk which the organisation cannot accept and what it can accept, considering the size and type of the business.
The second critical role of the board is going concern (crafting a winning strategy and monitoring its execution).
This is concerned with sustainability and long-term growth of the business or the organisation. As an entrepreneur, when you put money into the business, you want the business not to collapse so that it continues in existence for the foreseeable future. It is the role of the board to make the right choices of what the organisation should do and what it should not, considering their big picture understanding of the organisation dynamics.
How does the board ensure oversight and going concern?
The board must find the organisation’s ‘bulls eye’, make sure they have clear growth targets based on the industry and other fundamentals. Then, come up with clear choices of how they will win or hit the bulls eye. In business speak, the bulls eye is the enterprise-wise balanced scorecard that clearly defines what winning will look like in terms of finance, learning and growth (people), innovation or internal business processes and customer or stakeholder focus.
Once the board finds the ‘bulls eye’ – the performance targets – it must give it to management so that it can be executed.