Archive
22
July
2013
An effective Board of Directors is a significant component of an effective corporate governance framework. Effectiveness can be represented by quality and robustness. I define quality as the Board being fully engaged and actively fulfilling its mandate. I define robustness as having individuals on the Board with complementary skill sets and a majority of independent Board members.
As a former auditor, I attended countless Audit Committee and Board meetings. Some meetings were crisp, lively and energetic. Management came to the meeting prepared and ensured their Board was prepared. Issues were discussed and debated and consensuses emerged. I left these meetings feeling inspired and energized.
Most meetings I attended left me yearning for the local pub. Materials were hot off the printer and rushed to the Board as the meeting was in progress. Management awkwardly read the slides shown up on the wall while Board members checked their Blackberries.
10
July
2013
When asked how the company ended up getting into a market that had little to do with their stated strategy, the Chief Operating Officer replied, “I’m not sure. We thought it sounded really interesting so we went ahead with it. In hindsight I wish we had left it alone”
When asked how they came up with the purchase price for a set of assets, the Chief Financial Officer indicated with a bit of disdain, “That one really ticks me off. I provided a pretty thorough analysis indicating a value range. Next thing I hear we paid them ten times that! What a waste of money.”
Many individuals struggle to verbalize the concept of corporate governance. Some will mumble something about “the tone at the top” and internal controls. Their description is true, but vague. Simply put, when we talk about corporate governance we are talking about the framework put in place to ensure the above two examples do not occur.
Corporate governance is about allocating the authority to act to various individuals in the organization, defining the roles and responsibilities of the board of directors, management and staff, and making clear how decisions will be made. I tend to think about corporate governance in terms of documents and actions.