Responsibilities of  the Board of Directors

Responsibilities of the Board of Directors

THE ever increasing occurrence of corporate scandals has evoked a renewed focus on the role of directors and the importance of good governance. The world is changing rapidly. We have witnessed rapid technological and scientific advancement. The ubiquitous social media has introduced radical transparency in how people communicate.
Organisations have not been spared by this radical change in how people communicate. Whatever organisations do is now a subject of public scrutiny. Climate change has taken centre stage in geopolitical discussions. The Internet of things, the 4th Industrial Revolution and Big Data have become major issues that organisations can’t ignore if they have to survive into the future. These new global realities have to be considered by any serious business leader since the public is now demanding more accountability.
The above issues have brought more demands on how businesses should be directed and controlled. Codes of corporate governance have been developed to assist business leaders in overseeing the running of organisations. These responsibilities are over and above the legal requirements in the Companies Act.
In South Africa the King Code of Corporate Governance has been developed. The UK has the Combined Code and other countries have their own types of codes of corporate governance. There is a difference between the law and a voluntary code of corporate governance.

The law provides the framework that people must not transgress and provides the sanctions they will face if they do whereas a voluntary code like King or the Combined Code seeks to set out the principles and best practices that organisations with a sincere desire to achieve good governance should follow.
However some parts of a governance code may be formally integrated into legislation/regulation, for instance some elements of King III were incorporated into the new South African Companies Act. As a result of these developments the responsibilities of the directors have therefore expanded from the normal statutory requirements in the Companies Act to include those espoused in the codes of corporate governance.

It is common knowledge that no law or code can realistically hope to prevent criminal activity. If someone wants to do something wrong, he or she will do it either by disregarding the law or finding a loophole within it or by not adopting the code of good corporate governance.
As a result of this reality the King IV code of governance has placed more emphasis on creating an ethical culture and mindset which will encourage individuals and companies to act in the right way even when nobody is looking because they understand that to do so makes good business sense and reduces risk.
In the King IV Code, corporate governance is defined as the exercise of ethical and effective leadership by the governing body or Board of Directors towards the achievement of the following governance outcomes: ethical culture, good performance, effective control and legitimacy. Ethical leadership is to do with integrity, accountability, competence, responsibility, fairness and transparency.

Effective leadership is results driven. It’s about meeting strategic objectives and positive outcomes. The driver of corporate governance is the Board. So the Board is expected to exercise ethical and effective leadership. Some of the responsibilities of the Board in King Code are discussed below.
One of the primary responsibilities of the Board is to steer and set the strategic direction of the organisation on the basis of which management will develop the strategy which is to be approved by the Board. Management will develop policies and operational plans that give effect to the strategy.
Management will then implement and execute the strategy in line with the approved policies and plans. The Board will oversee and monitor the implementation and execution of the strategy by management and will be accountable for the performance of the organisation.

The other responsibility of the Board is to lead ethically and effectively by ensuring that its board members exhibit:
Integrity – acting ethically and in good faith and avoiding conflict of interest,
Competence – having sufficient working knowledge of the organisation and act with due care skill and diligence
Responsibility – collective responsibility in steering and setting the direction of the organisation, taking risks and capturing opportunities, and taking responsibility for anticipating or preventing negative outcomes of their decisions

Accountability – be willing to answer for the execution of their responsibilities
Fairness – adopt stakeholder inclusive approach in the execution of their roles
Transparency – being transparent in the way they exercise their roles
The other responsibility of the Board is to ensure that the organisation is and is seen to be a good corporate citizen. Since the organisation operates within the community it should display good citizenship by obeying laws of the nation, ensuring that its core purpose, values and strategy are in line with society’s expectations.
It should ensure that its employment processes are fair and equitable; and that it prevents environmental degradation resulting from pollution, waste disposal; and weeds out corruption and promotes human rights and consumer protection.
The Board should ensure that it is composed of members with a balance of skills, knowledge, independence, diversity and experience. This will ensure that it will be able to discharge its responsibilities effectively. Diverse boards are considered to be more effective because different perspectives can result in less risky decision-making and a better representation of stakeholders’ interests.

Given today’s fast-changing world, one that is volatile, uncertain, complex, and ambiguous and a globalised operating environment, in which long established business plans and strategies are becoming digitally disrupted, boards need directors with a wide range of backgrounds, experiences, and perspectives which will help in effective decision making.
The Board should oversee risk management by ensuring that risk is integral in decision making.
The Board should set the organisation’s risk appetite and delegate to management the responsibility to implement and execute effective risk management.
The other responsibility is for the Board to manage technology and information in a way that will enable it to achieve its strategic objectives. Around the globe, organizations of all types and in all industries are seeing their long-standing business models becoming digitally disrupted. Digital technologies are impacting on organisational performance in many ways. Digital technologies are transforming the customer experience.

Organizations are being enabled to tailor the products or services they offer to the unique preferences of each customer. Also digital technologies are transforming the way organizations deliver their products or services, allowing customers to obtain products and services when and where they want them.
It’s therefore important for the Board to harness technology and information for the good of the organisation. Many traditional companies, however, have yet to fully determine how best to utilize digital technologies such as cloud, analytics, social media, and mobile. The above discussions have touched on some of the key responsibilities that Boards should adopt to ensure good corporate governance.

  • Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy, advanced performance management and entrepreneurship.
    He is the Managing Consultant of Shekina Consulting (Pty) Ltd and provides advisory and guidance on leadership, strategy and execution, corporate governance, preparation of business plans, tender documents and on how to build and sustain high-performing organisations.
    For assistance in implementing some of the concepts discussed in these articles or in facilitating workshops or seminars please contact him on the following contacts: sjakarasi@gmail.com, call on +266 58881062 or WhatsApp +266 62110062 .
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