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The executive director: Surplus to requirement?

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In law there is no real distinction between the different categories of Directors. “It may be “unhelpful and even misleading to classify company directors as “executive” and “non-executive” for purposes of ascertaining their duties to the company or when any specific or affirmative action is required of them” – Re Elgindata Ltd. It is however an established practice to classify Directors according to their different roles on the Board.

Executive directors have “executive responsibility” for running the company’s business. They are company employees and have statutory responsibilities as Directors. Typically, they have responsibility for specific aspects of the business – Operations, Risk, Credit, HR & Admin, IT, etc. and report to the Board in respect of these specific business areas. They are usually technically competent in the area of oversight and responsible for the day-to-day running of the Company. As employees of the Company, they are expected to devote their whole time and attention to the work of the Company.

Led by the CEO, they constitute the Executive Management team.

As with non-executive directors, executive directors are expected to contribute to the robustness of deliberations on the Board to engender optimal decision making. The full complement of the Board’s diversity reckons with the skills set and experience executive directors bring on board. It will thus be a disservice to the Board and the enterprise if the only view the Board gets to hear from the Management side is the CEO’s.

The argument that team spirit at the level of execute management should preclude an Executive Director from expressing a different view point, reservation about a proposal or sharing a different perspective begs the question of the relevance of appointing executives to the Board. Whilst it is expected that the executive team will come to the Board with a

“common position” – regardless of the “minority opinion”, a significant concern should be brought to the attention of the Board.

If all executive directors do is present reports on their respective portfolios and agree with “Management’s position”, then perhaps the Board seat could be better utilized by a Non-Executive Director? As functional heads, they can be invited to provide updates to the Board on their respective portfolios as required, or otherwise report to the Board through the CEO.

Clearly one is not advocating dissonance or acrimony as this would not in any way promote Board effectiveness. However, to the extent that the ultimate duty of loyalty is owed to the entity, all Directors irrespective of which side of the divide they belong, are expected to act in the best interest of the enterprise. It is instructive that the Companies and Allied Matters Act does not distinguish between executive and non-executive Directors in spelling out the duties and responsibilities of Directors.

Many Executive Directors are appointed to the Board via promotion and lateral hiring. More often than not, they are unable to strike a balance between their management of the company, their fiduciary duties and the independent state of mind required of a Director. As a fiduciary, a Director is expected to consider the best interest of the Company and not what is “right for the Management of the Company”.

To perform optimally, executive directors need to be properly prepared to step up to the Board. Relevant leadership and director development training programmes are imperative. An independent mindset – as aspirational as it sounds – is required of all Directors. The confidence to speak up and candidly, ability to contribute to healthy debate and conversational intelligence are desirable traits in an Executive Director.

The Board Chair has a responsibility to ensure that all Directors contribute to Board deliberations and in this regard will need to draw out less vocal Directors. It is not out of place for the Chairman to encourage executive directors to share their perspectives on proposals before the Board and they in turn should have the courage to speak up where they have legitimate concerns.

 

 Bisi Adeyemi

Adeyemi is the Managing Director, DCSL Corporate Services Limited. Kindly forward comments and reactions tobadeyemi@dcsl.com.ng

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