Key Functions of the Board of Directors – Zim Perspective

 

Fungai Chimwamurombe and Bhekimpilo Mangena

 

Board functions – An overview

The Companies and Other Business Entities Act, [Chapter 24:31] (hereinafter the ‘’Act’’) has amplified duties and liabilities of the board of directors.

The relevant sections of the Act are 54 to 57; 195 and 197. This article seeks to consider and streamline key functions of the board of directors as outlined by Bob Garratt in his timeless book titled “The Fish Rots from the Head’’.

There is consensus amongst key governance codes such as the Zimbabwe National Code on Corporate Governance 2014; King IV Report 2016 and UK Corporate Governance Code July 2018 that the role of the board is to provide ethical, effective and entrepreneurial organisational leadership.

The Act do outline qualities, principles and conduct expected of a board member which would result in him/her providing effective leadership which aligns to the key functions of the board of directors.

Policy Formulation and Foresight

The board has a duty to propose and formulate the organisational policy framework which should guide it into the future. In developing such, the starting point is reviewing the company’s purpose, vision and values.

Most organisations do this every five years and/or every time a new board comes on board, aligned to its tenure. It is critical to check progress annually and give adequate feedback to shareholders.

A collaborative approach should be used in coming up with purpose, values and mission to ensure that everyone within the organisation assumes the desired corporate culture.

The guiding principles in policy formulation and foresight is to monitor external environment and develop internal policies and procedures which give impetus to operating efficiency and ability to stand competition as well as other external shocks. The Governance and Risk Framework and the Business Continuity Plan and/or Disaster Recovery Plan are some of the key policies which should be in place for the board to lead into the future. The policies should be reviewed annually, with quarterly reporting at board level and monthly reviews at management level through management tools which build into the policy.

Strategic Thinking

Most often, we speak of thinking outside the box and even living outside the box as synonymous with strategic thinking. The question is what entails strategic thinking and is your board of directors capacitated to think strategically. The board has to position the company so that it takes its place in the local market, region and the globe.

The strategic plan should set the company’s direction under the board’s leadership. The board has the responsibility to oversee execution of the strategic plan and should do so quarterly through board meetings.

The strategic plan also sets the risk appetite for the organisation and review risk management to align with set targets. The board should consider how the strategic plan shall be financed, in terms of resourcing the organisation through a budgetary plan for the strategy to work since failure to do so, would see it gather dust, with planning to plan becoming the order of the day. Strategies which revolve around continuous technological innovations has unlocked enormous potential over the years.

Supervising Management

It is on record that the board has to delegate its function to management for day to day operations in the organisation. Upon delegation, the board should continue to supervise management, keeping abreast of developments in the organisation through board meetings, memos and updates.

Effective supervision include monitoring budgetary controls, reviewing operational results in terms of both quality and quantity and assessing organisational capability such as scaling up at minimal costs. Management has a duty to provide information that helps the board to make informed decisions. The Chief Executive Officer of the organisation should work towards a set of key performance indicators (KPIs) set by the board of directors in view of its strategic goals, broken down to annual targets.

Accountability

The board of directors has a duty to the organisation and is accountable to it for its actions. It is also accountable to the shareholders and other stakeholders, hence the need to report to shareholders at the Annual General Meeting and any other stakeholders through relevant platforms.  Regulatory compliance is key and the board should ensure 100% compliance with all regulatory requirements such as tax and licensing authorities. As per title of the book, The Fish Rots from the Head, the board should be accountable for the organisation’s performance including poor results which may lead to its censure.

Simply put, the board’s actions culminates into good and/or bad performance of the organisation and it should be accountable for its actions at the end of the day.

Conclusion

The environment remains topical and the environmental, social and governance (ESG) reporting standards and legislation calls upon boards to account to future generations through sustainable operations.  It therefore calls upon the board of directors to ensure that policies, strategies and operations are aligned to sustainability of communities within which they operate. ESG is therefore central to the key functions of the board.

Fungai Chimwamurombe is a registered legal practitioner and Senior Partner at Chimwamurombe Legal Practice and can be contacted for feedback at [email protected] and WhatsApp 0772 997 889.

Bhekimpilo Mangena is a registered Legal Practitioner, Public Accountant and a Business Consultant at Zenas Consulting (Pvt) Limited and can be contacted for feedback at [email protected] and WhatsApp 0712500490

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