Over time, good-governance advocates have developed no shortage of remedies for failures of governance at businesses. However, good and bad companies alike have already adopted most of those corporate practices but improvements are still needed at many Boards to improve shareholder value particularly in times of changing, competitive, global market conditions.
The more “engaged form of corporate governance” and active ownership exhibited, typically but not always, by private equity Boards does provide us with some ideas as to how more traditional public and private company Boards could be more effective at delivering shareholder value. It is the combination of the clarity of purpose and the shorter lines of communication that enables private equity Boards to act quickly and without having to worry about next quarter’s earnings announcement (except for potential banking covenant issues). Moreover, being proprietors they are able to back their own judgment and move decisively.
A major responsibility of the Board is to ensure the viability and sustainability of a well-run business, are in accordance with the wishes of the shareholders. Boards must not be complacent and ensure that they continually receive relevant, accurate, timely and well-presented (actual and forecast) information from management so that the Boards can (i) have professional, results orientated, data analytical discussions with respect, trust and candour; (ii) apply their “judgement” to taking proactive and decisive decisions; and then (iii) clearly communicate their decisions to management so that there are no doubts in anyone’s mind what has been agreed and why.
Thinking beyond the status quo will be crucial for Boards to help their companies stay agile and competitive as they manoeuvre the rapidly changing business landscape, in terms of technology and economic and market conditions. It is also as important as ever for Audit committees, which continue to wrestle with heavy task loads, to stay focused on their core oversight responsibility—financial and operational reporting integrity so that good decisions can be based on good data.
The most involved, diligent, value-adding Boards may or may not follow every recommendation in the good-governance handbook. But if a Board is to truly fulfil its mission as (i) Advisor; and (ii) Oversight, the Board must both (i) receive timely, accurate and relevant information; and (ii) get The Human Element right which allows for a Professional, Results Orientated, Data Analytical, Decision Body to act with Respect, Trust and Candour.
By David Farrell, President of David Farrell Advisory Inc.
