Corporate governance, part 1 of 3: Four amber signs of poor governance in your organization
Following my most popular article, “Boardroom politics killing institutions in Uganda”, below are four signs of poor governance, I learnt from Sam F. Owori, CEO at the Institute of Corporate Governance of Uganda (ICGU).
Sam F. Owori is a former banker and seasoned Rotarian. Aware of the need to lead by example, he ensures that all new ICGU council members get inducted at the first sitting following their appointment. The induction features presentation by Sam about the ICGU and the responsibilities of the board. At our recent induction, Sam shared his experiences of the qualities of a good board, and amber signs fo poor governance. In this part 1, we share the amber signs. In part 2, we discuss about the tale tell signs of a board from hell:
Amber signs for a bad board
(a) No distinction between shareholder, Board and management. A shareholder is a person with an interest (usually ownership equity) in the business. Management are people who run the business on behalf of the owner/s (shareholders). For going concern, the owner should be distinct from management. Board is the topmost decision making body of the business.
Amber sign: one of the members plays all these roles. It is normal to find a shareholder, who is the board member, and also a manager (in the private world referred to as “Chairman.”) Once there is not distinction between board of governors and management, there is a governance problem.
(b) Fused Chairman and CEO/ MD. These people are expected to work together, NOT to play together. In governance, one should be and be seen to be independent. In most boards, you find the CEO and the Board chairman are inseparable. That is a bad sign. The Board chairman must remember that their role is oversight one to ensure effective risk management and going concern.
Amber sign: The Board chairman often visits the company, and in some extreme instances he has an office at the head office!
(c) Unclear reporting line of Internal Audit. If your organization lacks a proper reporting structure especially for internal audit, get concerned. Much as internal audit must work with management, their salaries and pay does not have to be determined by the CEO/ MD. If the MD has to facilitate the auditors, how independent are they? The board must empower its audit committee to approve the internal audit budget and also review their performance based on the annual audit plan and achievements made.
Amber sign: The Internal Auditor/s report to the CEO/ MD, who also reviews their performance, and approves their budget. How will the MD empower internal audit to review areas they know they are committing a fraud?
(d) Poor corporate communication. One of the questions I ask participants during a strategic retreat is to list the top 3 priorities of focus by the company. Most of the time, every participant writes their own “3 priorities’ which indicates lack of congruence and strategic alignment. If I am speaking to senior management of the same company, why on earth should you know different strategic areas of focus by your company? Many companies will say team work, innovation, etc theoretically instead of practicing what they preach. Has the company established a clear reporting system, including a robust whistleblower strategy? Can anyone in middle management talk to the MD freely? Do you contact an annual meeting where all the Board members are introduced to staff and they ask any question on their mind?
Amber sign: Senior and middle staff don’t know the company’s top areas of focus. And management is exclusive. No one gets to access what the company’s priorities are.
To be continued… Corporate governance, part 2 of 3: the tale tell signs of a Board from hell
Copyright Mustapha B. Mugisa, MBA. 2014 all rights reserved.