Saturday 18 January 2020

Good governance starts at the board room table

As we continue to rumble through the aftermath of the global financial crisis and the ever-changing set of uncertainties in the markets, the eurozone is entering a mild phase of positivity, which is being reflected globally.

What the global financial crisis has informed us of, or more so reaffirmed, is the requirement for a standard in corporate governance at the highest level across all industries and sectors.

This starts at the board room table and the role of the non-executive director. A non-executive director is a boardroom appointee who is not an employee of the company, but is paid an annual fee for their contributions to the entity in guiding and directing the business.

An independent non-executive director (INED) is the same as the above but must not have been a recent employee of the organisation (recent being less than five years).

An INED can be invaluable to a business as they bring their career-developed skill set and experiences to an organisation in a strict oversight role, where their independence provides a crucial external perspective.

It is important to remember an INED is not there to run the company, but to challenge the strategy, direction, growth and sustainability plans that are proposed by the CEO and his/her executive management team.

While the exact skill set for each INED will vary depending on the nature of the business they work with, some characteristics remain consistent.

In addition to remaining independent, it is important that the board appoints someone with an extensive breadth and depth of executive experience and who possesses strong communications and interpersonal skills.

Furthermore, in order to make well-informed contributions that benefit the company, the INED must be better informed, even more committed and possess a wider array of operational knowledge than might have been expected in the past. Mastering the complexities of risk is now considered elementary for boards operating in the post-crisis era. Sophisticated numeracy skills are similarly likely to become de rigueur.

Keeping abreast of globalisation and the ramifications of technological advancements is equally critical for INEDs, who must fully understand the context in which their company operates.

A major positive that can be taken from the global financial crisis, which began in 2008 and is continuing to trundle on, is that financial institutions are now being regulated to an extremely high level.

With the FSA in the UK and, closer to home, with our own Financial Regulator within the Central Bank, we are seeing a set of corporate governance codes being handed down to such financially regulated entities, which is a 'must adhere to' policy.

The INED is now answerable to the Financial Regulator implicitly. Not only does the INED need to be approved by the regulator as a fit person to be appointed to any board, he or she is limited in the number of commitments they can have so as the individual can devote adequate time to each appointment. He/she is continually monitored by the regulator through a series of interviews and, in a manner, this is a continuous assessment of the INED's fitness to be a board appointee.

As an executive search firm that specialises in the area of board appointments, we are seeing similar guidelines being handed down by other regulated industries.

Many of these industries are self-regulated, but it is extremely positive that the message of a high standard of corporate governance at the board room is spreading far and wide.

John Harty is a director of Harty International.

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