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No executive directors!
By Doug Matheson
76 |
THE DIRECTOR | NOVEMBER 2012
on the same side. Executive directors reduce transparency and accountability when what shareholders want, and need, is effective leadership and monitoring of management performance. Monitoring t he chief executive’s performance is downplayed when he or she becomes a board member. Boards with executive members don’t scrutinise
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board are not performing as they should. When the chief executive is also the chairperson, the executive directors have a subordinate management relationship that inevitably has a strong influence on their independence and effectiveness as directors. Good practice governance must be independent of management to ‘get the
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he reputation of directors, boards and their governance performance has taken a beating in the eyes of shareholders, investors, media, regulatory agencies and the public at large. Yes – the environment is tough, volatile and challenging. But many companies have survived, just, when they should have done better. It is a key governance responsibility to anticipate poor performance and ensure strategies are in place and carried out by high performing managers. And on that point, the important question of the effectiveness of executive directors has been raised with respect to the performance of a number of boards. Boards must be independent and hold management accountable. Directors must be able to address poor management performance or non-performance, effectively and promptly. And boards with executive directors do not oversee or scrutinise management to the extent independent boards do. Management dominated boards inevitably increase risk. The entire culture and effectiveness of a board’s management oversight is watered down when executives are also directors. The culture becomes more collegiate. The judge and judged are
Directors must always be in a position to ask management the hard questions.
management to the extent independent boards do. Executive directors commonly support the chief executive and inhibit open debate in front of independent directors. Managers who report to the chief executive have an understandably strong alignment to their CEO – as they should. It is therefore difficult, if not impossible, for them to function independently as directors, monitoring and reviewing the performance of their leader, or of themselves as managers. The board’s examination of management performance is seriously compromised. It is particularly difficult when the chief executive or other senior executives on a
best from management’. To ensure robust oversight, performance scrutiny and good decision-making boards need to be totally independent, entirely objective and removed from the ‘hype’ of what’s going on inside the organisation. Directors must be able to raise concerns spontaneously and discuss them openly, frankly and constructively. They must also be able to review individual shortcomings in the context of the company’s performance, and decide on a course of action there and then. Executive directors make this impossible. To have to ask a fellow director or chair-