The Big Question is: Does your Board have What it will takes to Perform effectively as Expected?
Read this article to find out.
Board Effectiveness – What It Takes for SACCOs, CBOs, CSOs, Self-Help Groups
The Worlds Economic crisis that began in 2008 and coupled with many scandals that have occurred in the last decade has increased the focus on both the role of the Board and Senior Management and their effectiveness in executing their responsibilities.
The Board is the supreme decision making organ of the organization. Its main role is to formulate and enforce the same whereas the Senior Management is the executive organ of the organization which the Board has delegated the authority to manage the affairs on day-to-day basis. The roles of the Board and Senior Management are separate and distinct in the letter of the Law. However in practise there is high tendency of overlap. Therefore the Board should perform their duties with a high degree of independence and tempered with level of interdependence with Senior Management. Because in the eyes of Stakeholder they are the same and one thing!
The Boards and Senior Management are under intense scrutiny — from Shareholders, Members, Policy Makers, Regulators, Politicians, the Media, employees, and other Stakeholders Suppliers among others. The Board Members and SACCO Senior Officers know that, since their work happens behind closed boardroom doors, they rarely receive praises for helping the Organizations succeed and solve problems. But they are placed on the altar ready to be sacrificed when things go wrong whether real or fiction.
Given this precarious situation they face an ever-evolving landscape, Board Members and Senior Officers should focus on understanding the scope of their key responsibilities and engaging in a considered process to discharge those roles professionally.
The eight Key Responsibilities for effective Boards as identified by the Gurus of Corporate Governance are listed here and I will discuss these in detail herein.
- Formulating and Implementing the Strategy
- Managing Risks and Crises
- Corporate Ethics
- Monitoring Performance
- Handling the Transformational Transactions
- Managing Evaluation, Compensation, and Succession
- Communicating with Stakeholders
- Dealing with the Board Dynamics
Formulating and Implementing the Strategy
Strategy sets the direction for a SACCO and impacts virtually everything the SACCO exists for. The right strategy is the starting point for success. The board has a vital role to play in overseeing management’s formulating and implementing the s But this is a challenging area because it requires Board Members to thoroughly understand:
i. the SACCO or CBO or Self-Help Group,
ii. the industry,
iii. emerging trends and risks, and
iv. Senior management’s assumptions.
Equipped with the right information and at the right time, Board Members can engage in a robust discussion that allows them to contribute to management’s proposed strategic plan. Ideally, their involvement will help the SACCO adopt the plan most likely to enhance members’ value.
There is need to highlight the leading practices for effective board oversight of strategy development and implementation.
Managing Risks and Crises
Today’s SACCOs face a vast array of risks — both known and unexpected. Some risks turn into crises that have significant implications for operations or even a SACCOs’ future. Given this setting, it’s a challenge for boards to get complacency that an inherent risk or emerging issue is being addressed appropriately — but it’s a critical responsibility.
It has been noted that most Boards frequently delegate elements of risks and crises oversight to committees — most commonly to the Audit Committee. But ultimately the responsibility for oversight – buck stops with the Full Board, and each Board Member individually should understand the key risks and crises foreseeable.
There is need to help Board members better understand the changing landscape of risk and crises oversight, management’s role in managing risk and crises, and effective ways to manage the same. It also includes insights on how boards can most effectively discharge their responsibilities when a crisis strikes.
Compliance with the Laws and Regulations is critical. But Board members recognize it is only the starting point in creating a culture of ethical behavior. The right tone at the top, reinforced by Senior Officers throughout the SACCO, is vital to ensure these values cascade to all employees at the bottom.
There is need to help boards understand how tone at the top is set and the role they can play in overseeing SACCO’s culture, especially in times of change or crisis. Also emphasizes the importance of Board Members demonstrating ethical behavior – living example.
Boards use many data points to monitor SACCO’s performance — including traditional financial facts and figures and non-financial metrics, along with peer and industry information. Knowing what metrics are most effective in helping directors to understand performance and see early indicators of trouble is challenging. Astute Board members also know it is important to raise concerns based on a gut feeling — even if their concerns prove to be unfounded.
There is need to share insights on selecting the right facts and figures, setting and monitoring targets, and effectively sifting through information sources.
Handling the Transformational Transactions
At some stage, a SACCO will go through a potentially transformative transaction. This could be an acquisition, divestiture, succession management or other business alliance such as a joint venture. The stakes for the SACCO are high in terms of investment, reputation, and whether the deal ultimately contributes to the success of the SACCO’s overall strategy. Given the significant potential impact of a deal on members’ value, boards have a key role in working with SACCO executives to set the stage for successful transactions and maximize their value.
There is need to provide insight as to how boards can do this effectively, and outlines key considerations for the different stages and different types of transactions.
Managing Evaluation, Compensation, and Succession
Executive compensation may be the board responsibility most scrutinized by members, investors, the media, and other stakeholders. Stakeholders have extensive visibility into executive remuneration levels, but perhaps more limited understanding of the complexity Board Members face as they try to get it “right.” Boards must balance many factors in reaching compensation decisions — attracting and retaining top talent while incenting behaviors that will achieve long-term Members’ value.
There is need to provide insights on effective evaluation and compensation processes and the importance of director independence in making these sensitive decisions. It also deals with the issue of CEO succession — whether planned or unplanned — and offers advice for boards to consider as they deal with this important issue.
Communicating with Stakeholders
Disclosure requirements — for financial statements and other regulatory filings — have become more voluminous and complex and are under greater scrutiny. Stakeholders have also been asking for more information, beyond what SACCOs are required to provide, to really help them understand performance and risks. These factors alone make the board’s role more challenging. In addition, new technologies are changing how SACCOs communicate with stakeholders and how stakeholders and SACCOs critics exchange information.
There is need to describe how boards can best discharge their oversight responsibilities to ensure that communications are transparent, accurate, and reliable, while balancing stakeholders’ demands for more information.
Dealing with the Board Dynamics
Composition and leadership are critical in supporting a board’s ability to carry out its responsibilities effectively. Boards need the right combination of skills and experience — and to be alert to the fact that the “right” combination changes over time. They also need a leader who will ensure the board effectively discharges its responsibilities and a process that engages directors most productively.
There need to discuss considerations for board composition and leadership, effective board processes, procedures and systems, and training and education.