Last week, I began exploring the phenomenon of the tail wagging the dog, which is that time of the year when management leads its board by the nose ring. I cited the example of board committees that were not meeting during the board calendar year and placed the blame squarely on the indolent feet of the board committee chair and her equally lackadaisical board chairperson.
A reader who is an old and deeply respected corporate governance colleague of mine sent a thought-provoking response to my piece which I will paraphrase here: “I disagree on the functionality of committees and who is to blame when committees are dysfunctional. Who generates committee business? Except for the audit committee, it is the CEO. Not heads of business units like in the cited examples of HR, Finance etc.
All papers going to the committees should be signed by the CEO. The CEO causes the reason for the committee meetings and is supposed to present all papers at committees except audit, while backed up by respective functional heads. Who is therefore to blame when committees are not meeting?
The buck may stop at the CEO’s desk in case there is no agenda generated by the CEO to warrant convening of meetings. It would be interesting to have a committee chair convene a meeting simply because every quarter requires a meeting.”
Let me remind all of us about corporations, be they government or private sector owned. The body corporate is established by its shareholders, be they individuals or the State. Those shareholders give the power to oversee the work of that corporate to directors who are collectively referred to as the board.
The board then delegates the authority to execute the mandate to management. That is why they are called executives, as they execute the mandate at the highest level.
In case you missed it while munching on Mama Mwende’s mandazis during the last board tea break, the definition of executive is “relating to or having the power to put plans or actions into effect”. Therefore let me reiterate my reiteration: executive power is delegated to management by the board, and the board’s power comes from its shareholders.
In addition, a board committee represents delegated authority of the board. You can apply the Microsoft Word tool of “find” committee and “replace” with board to test this theory. A committee does the work of the board and due to the fact that it represents delegated authority, such work does not have effective authority until ratified and adopted by the board itself.
If a committee is not meeting to undertake its work delineated in its terms of reference, then effectively the board is not undertaking the work so delineated.
Now, the oversight work that a committee does is generated by management. I agree with my colleague that the CEO represents management. But the CEO does not roll up her sleeves and place a carefully manicured nail on the “F5” button on the keyboard to undertake an excel spreadsheet function for last quarter’s employment attrition report.
That is done by a long-suffering officer in the human resources (HR) department and a gimlet eye thrown on the same report by the Head of HR before it is emailed to the CEO at 1600 hrs on a Friday afternoon when she is sipping on her third gin and tonic at her country club lawn.
If no one at the board is asking to see what the employee attrition rate is, or why it is steadily climbing quarter on quarter, trust me, no CEO is going to be welcoming directors at the ground floor reception with that piece of news.
Board and committee agendas must be carefully curated by the respective chairpersons and the content therein generated by management. What doesn’t get measured simply doesn’t get done and if the board doesn’t know what to ask, it is not in management’s interest to volunteer information that is likely to put their necks on a chopping board.
After all, no goat has ever taken itself willingly to a slaughterhouse. The CEO does not cause the meeting to happen. The board must be the cause and do so because the shareholders expect them to.
Next week, I’ll respond to the second point raised about who should present at the committee meeting: the CEO or the head of the respective department?
