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CGF ARTICLES, OPINIONS & EDITORIALS

Dealing decisively with boardroom dysfunction: No ‘silver bullet’... (2014-05-06)

Article by Terrance M. Booysen

In the context of corporate governance, much has been said and written about boardroom dysfunction and the impacts this can have on a company. 
Indeed, there are many reasons associated with boardroom dysfunction and if left unchecked, it can wreak havoc with devastating results.  The symptoms of boardroom dysfunction can range from -- for example -- directors in the company who show scant regard for its business, to those who lack the ability to maintain confidentiality and order, right through to those who completely disregard the company’s stated objectives and decide to rather serve their own personal agendas as opposed to those of the company.  But as the saying goes, ‘the fish rots from the head’ and when the signs of dysfunction become evident, a person has to ask how the leadership of the company has addressed the dysfunction, and indeed further question whether or not it was the lack of leadership that led to the dysfunction in the first place.

Undoubtedly -- and unlike any comparable time previously -- South Africans are living in uncertain, yet extraordinary times.  Whether it’s about the political uncertainty as South Africans head to the next general elections or the extent of the often violent industrial and social protests, right through to the disruptions of basic services; these times are unpredictable with cautious optimism ahead.  But in these times, in order to exist as a well-functioning and sustainable company, it is absolutely essential for the board and its leadership to remain focused upon the very essence that binds them with the company and its shareholders.  Simply put, most business leaders are united in their quest for profit, and if leaders -- more specifically the board of directors -- do not strategically manage all the elements of risk within the company’s sphere of business, the profits will evade them, and equally so their shareholders.

Accordingly, it is prudent to start with some of the most basic duties one should expect from the leadership of any company, irrespective of whether or not the company exists for profit or not.  All leaders -- managers, directors and prescribed officers -- are bound to serve the best interests of the company to which they are appointed, and this must be done on the basis that directors fulfil their fiduciary duties*.  As its custodians, directors must act in good faith and apply their mind to the company and its affairs, moreover performing their duties of care, skill and diligence at all times.  Directors must devote serious attention to the affairs of the company, but in many instances they ‘skirt’ some of the most basic governance issues that underpin the company’s sustainability.  Directors who fail to place the interests of the company first and foremost, not only expose the company to unnecessary forms of risk and possible dysfunction, they also act in direct contravention of their fiduciary duties, which frankly speaking, is reckless.

Boards are powerful forces; and through their directors’ collective knowledge, skill, experience and practice, their output is intended to bring about positive and sustainable growth and prosperity for the company.  However there are instances where the board of directors may become dysfunctional.  A dysfunctional board typically fails to make decisions that are in the best interest of the company, thereby causing several problems at strategic and operational levels.  Today -- more than ever -- having a high-performing board is a critical success factor for organisational leadership and the company’s overall performance.  It is therefore imperative that boards function well in order to have a positive impact on the company, including its supply chain.

The impact of a dysfunctional board is bad for the bottom line and can ultimately lead to the failure of the company.  Dysfunctional boards (or its members) can tarnish or destroy entire brands, as well as leave an ugly stain on the reputation of the company’s directors.
  
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