How to ensure Board member independence
For the Board to be effective, it needs to be independent from undue influence from many interested parties. These might be the staff, owners or even the shareholders. Before the Board is independent, it has to be independently appointed.
We have had a challenge where the person who appoints the Board influences it in that he wants decisions to be taken in his favor. Things he does not want should be untaken by the company. We have seen influence peddling in government institutions. For example, if you look at National Social Security Fund (NSSF), the NSSF Act Cap 222 Laws of Uganda gives the Minister of Finance powers to appoint members to sit on the Board. Just like other government organizations, the Ministry of Energy, people who sit on the Board of Uganda Electricity Transmission Company are appointed by the Minister of Energy. So in this case there is a lot of political influence because the members have to act to the interests of the person who appointed them.
How do you ensure Board member independence?
(a) Proper appointment of the Board members
You need to ensure there is clear separation of roles. The members are competent and no single has the rights to appoint members completely. Once one person appoints the members, it becomes difficult for them to be independent. If the managing director is going to be supervised by Board members whom he had influence in their appointment, it means that members will not be independent.
But also, we need to look on Board member independence in terms of other things. These include;
(b) How many Boards should a given member sit on?
In Uganda it is as if there is lack of talent and skills. You find one person is sitting on 10-20 boards. The businesses are the same like banks or government institutions. How is this Board member going to be independent from the decision one company while he is sitting on another company’s Board? This becomes a challenge in the sense that there is no fresh air, ‘you can not succeed if you are breathing your own exhaust.’ There should be a provision in the Companies Act 2012 Laws of Uganda in the restriction in the number of Boards a given member sits on. This will ensure that there is independence and secrecy because it is difficult to say the experience he is using to advise one company is not transferring it from another competing company.
(c) Remuneration of the Board Members
We have seen in the past or presently, the Law does not properly explain on how a Board member should be remunerated. That brings a big challenge in the sense that the managing director will find ways of how to influence the Board members. Most of the times, Board members are people almost in their retirement, they are called to sit because they are assumed to have good experience. But of course that theory is wrong although an old person who nearing to their retirement can be good to the business in terms experience they have got along the way, things which are driving businesses these days have changed. Technology is the number one business driver. These old people do not appreciate technology because by the time they were growing and vibrant in their careers, technology was not developed. The remuneration of the Board member should be made clearly in the appointment letter. Managing directors try to manipulate these old people because they are not working by giving them a lot of benefits such as transport, freebies. You find that you are so much dependent on the mercy of the managing director and management and becoming less independent.
(d) Skills and qualifications of the Board member
Each Board member should bring a new skill. This also depends on what kind of the industry the business is in. You do not want to find a Board member with only lawyers or engineers. You want to have a Board member with mixed skills. In that way, each member is contributing. It is recommended that Board members are mixed in terms of skills, age and experience. A good Board of say six members should comprise of people 35-44 years, with an average age of say 38 years.
(e) Appointment of Board member
Before you accept nomination, you need to understand about the company. You want to ensure that these people have got a Board Charter and the business well structured. A Board member must ask themselves, “I am going to add value or not?” the appointment on the Board is not an privilege it is a responsibility to deliver.
(f) What drives people to accept Board member appointment?
The ability to add value to the Board. Is the company having a history of listening to the Board?
You could go to a Board where things do not move. There is a Board for window dressing may be you want to get a loan or show perception of being well governed when actually there is no governance at all.
Once the Board id independent, it becomes effective.