Board Governance
Critical Role of Good Governance: Driving Sustainable High Performing Organisations in East Africa
Unlocking East Africa’s potential through transformative corporate governance.
Recent years have presented a very stern test of the calibre and resilience of boards across the world. The organisations that excelled in how they responded to the incredible challenges posed by macro-economic and global political instability inevitably had a combination of a strong board working in close partnership with an excellent executive team supported by an outstanding group of employees.
In addition to the capability to handle a crisis and difficult market conditions, a strong board is highly strategic and provides tremendous support to its executive team to enable it to adapt, thrive and excel. In the strongest boards we have seen, the board play a critical role in setting the company culture and standards, setting the bar consistently high for how employees and customers are treated and instilling the highest standards of ethics, transparency and “commitment to do the right thing”.
From an institutional investor perspective, this is a huge strength for a company and in an East African context, represents a key mechanism for increasing international investment in the region. As technology and business model disruption continues at a relentless pace, highly strategic innovative executive teams and boards in East Africa have a compelling opportunity to transform the level of inter-African trade and levels of African exports.
While East African companies are not unique in having to deal with the incredible volatility and economic/geo-political headwinds challenging every company today, they also face some unique challenges including:
Across the world, the focus on corporate governance has never been greater with company boards facing un-relenting pressure in navigating complex volatile market conditions and headwinds, delivering on Environmental, Social and Governance (ESG) commitments, particularly in relation to climate change and adapting strategically in the face of major technology and business-model disruption. Corporate governance and board scandals are never far from the news with the Wirecard scandal working its way through the German courts and the UK Post Office scandal highlighting the far-reaching consequences of boards and directors failing their shareholders and stakeholders. While governance codes and regulation are continually evolving and strengthening internationally, the litmus test for every board of directors continues to be the capability of the board to add significant value, steer the organisation through challenging crises, optimise decision making and truly excel for its shareholders, employees and stakeholders.
While there is a common perception internationally that corporate governance in Africa is still lagging behind advanced economies, our experience on the ground in delivering board evaluations for a number of leading African companies and organisations in Kenya, Nigeria, Morocco and South Africa is that this gap is narrowing fast and significant progress has been made in the African continent.
The African Peer Review Mechanism (ARPM) sponsored by the African Union, deserve great credit for their outstanding leadership in driving strengthening of corporate governance standards across Africa in the key areas of Board’s Composition and Functioning, Shareholder Rights and Activism, Information and Disclosure and Ownership and Control Structure.
In the 2022 Report from the ARPM on Drivers of Corporate Governance Performance in Africa: A cross country analysis, the East African region was strongly represented in the highest performing categories with the best performing countries in Board Composition and function being Nigeria, Kenya, Egypt and South Africa.
Africa has traditionally suffered from a lack of harmonized corporate governance standards or practices between countries and complex interlocked relations between government and the financial sector. Better understanding of global trends in governance and adoption of best practice methodologies will allow African businesses to leap-frog to even higher levels of performance.
Irrespective of where a company is based in the world, the fundamental characteristics of a high-performing company board are remarkably consistent, consisting of:
Throughout the world, research has consistently demonstrated a strong linkage between the standards of corporate governance, the quality/effectiveness of the board and the financial performance of a company. In the 2020 report from Grant Thornton “Getting Smart about Governance”, assessment across 2,300 companies listed on the London FTSE demonstrated that the total shareholder return delivered by companies with strong governance was 2x that of companies scoring lowest for quality of governance. This intuitively makes sense that a strong high-quality board working well with the executive team will optimise its major decision-making and drive sustained long-term success.
We fundamentally believe that driving sustained improvement in corporate governance and board effectiveness represents a powerful catalyst to underpin East Africa’s growth and resilience over the coming decade. This will be critical for all board types across the private and public sectors, from stock-market listed companies to private family businesses and venture-backed growth companies.
Public sector and state-owned enterprise boards have a crucial role to provide the critical infrastructure, services and supports to enable companies and economies flourish. The standards of governance and the quality of company boards has a fundamental bearing on the decision of international investors to invest in East Africa.
Development Finance institutions (DFI) and critical drivers of investment for East Africa such as the EU, World Bank have consistently placed a major emphasis on driving improvement in corporate governance in Africa. East Africa now has a unique opportunity to both embrace best practices from across the world as well as innovate itself in developing cutting edge approaches to board composition, effectiveness and performance.
One of the most significant changes that have taken place in boards over the last 5 years is the evolution of the role of Board Chair. This has coincided with the growth of Stakeholder Capitalism, ESG and progressive boards embracing a servant leadership model.
The Board Chair has a fundamental leadership role that shapes the composition and diversity of the board, the board’s effectiveness and value-add and has been entrusted by shareholders and stakeholders to enable the board and executive team to excel for shareholders, employees and stakeholders, driving long-term sustainable success. The Board chair sets the tone and example in terms of the organisation’s ethics, its behaviours and values, and in particular how shareholders, large and small, are treated.
Key attributes of modern progressive Chairs are excellent communication skills, strong levels of emotional intelligence and an ability to get the best out of board directors, individually and collectively, working closely with the Executive team.
One of the biggest changes happening in boards across the world and in East Africa is new approaches to board composition and diversity to ensure that the board have the right skillsets and vibrant diverse thinking styles for the next phases of the journey. In our experience, there is a compelling business case for board diversity across gender, age, professional, sector, ethnic/geographic and customer demographics background.
Over the years of evaluating and supporting boards, we have seen consistently more diverse boards drive higher-quality decision making, be far less prone to group-think type problems and walk-the-talk on embedding the best attributes of modern progressive boards of outstanding levels of customer-centricity, employee-centricity, ESG and “commitment to do the right thing”. Across the world, the average age of board directors in corporate boards has been in the early sixties with over 70% of board directors coming from the accountancy/ financial background.
As the world of work changes and younger executives achieving levels of responsibility far earlier than previous generations, a whole new cohort of highly capable younger board directors are emerging with strong capabilities in areas such as technology, new disruptive business models, ESG and in a number of cases, strong entrepreneurial track records. Many traditional corporate boards in developed economies have been slow in embracing the opportunity to modernise their whole approach to board composition, broadening the skillsets and regular refreshing. East Africa has a compelling opportunity to lead the way globally and enable a far more diverse boards with broader ranges of skillsets and a more dynamic agile approach to evolving the composition of the board.
The relationship between the Board and Executive team represents the absolute foundation of the standards of and quality of corporate governance and board effectiveness in an organisation. Traditional hierarchical models are starting to be replaced by a progressive partnership model which balances exceptional levels of robust intelligent challenge, debate and oversight with the Non-Executive Directors adding significant value, support and encouragement to the Executive team.
Where you have an outstanding executive team and board partnering together, you not only have strong foundations to enable sustained corporate success and out-performance, but you also importantly dramatically reduce the potential for scandals and destruction of shareholder value. Institutional Investors globally are increasingly focused on building a greater practical understanding of how effectively the board is working, how is it partnering with the Executive team and is this board and executive team genuinely excelling together for shareholders, employees and stakeholders.
We sincerely believe that this represents a blueprint for high-performing boards in East Africa, both in the private and public sectors.
One of the hallmarks of high-performing boards is a strong performance evaluation culture with annual board/committee evaluations and annual evaluations of the Board Chair and Non-Executive Directors. Strong boards recognise that as they preside over sophisticated performance evaluation systems for their Executives and all the employees in the organisation, they have a compelling duty to set the example themselves of a high-performance team where every board director is making a major contribution, pulling their weight and the combined board team is highly effective, demonstrating great leadership and playing a key role in the sustained success of the organisation. International best practice for board evaluations consists of an external independent board evaluation every 3 years followed by two internal board evaluations.
Progressive boards use an external board evaluation to identify a baseline of current effectiveness/performance and develop a roadmap to drive sustained improvement in the board’s effectiveness, governance and performance. The Board Chair, General Counsel/Company Secretary and Governance/ Nominations Committees have a crucial role to champion high-quality evaluations that provide shareholders and stakeholders the confidence of a board continuously improving and deeply committed to excellence.
Boards internationally have also increased the level of training and continuous development to ensure that they benefit from the latest thinking and best practices in board dynamics, board effectiveness, corporate governance, strategy/business models, risk management, cyber-security, ESG and organisational culture.
Irrespective of which country a company is headquartered in across the world and the corporate governance codes and regulation which apply, the ultimate conduct, behaviours and success of the company rests with the board of directors.
Their own expertise, experience, judgement, ethics and values combine under the Chair’s leadership and in partnership with the Executive Team to shape the major decision-making of the company, how it treats its employees and customers, and how it delivers on the significant responsibilities entrusted to it by its shareholders, large and small. We passionately believe that a step-change in the levels of board effectiveness and corporate governance in both the private and public sectors, represents a powerful lever to enable East Africa’s economic transformation.
This builds strongly on the core strengths in East Africa of a fast-growing youthful population, rapid urbanisation, fast growing services such as Fintech and a cohort of strong family business with significant scaling potential both within East Africa and internationally.
East Africa has a compelling opportunity to innovate in new approaches to highly diverse boards and a more agile approach to board skills evolution that can become the international best-practice.
The East African region becoming a standard-bearer of modern progressive corporate governance represents a compelling push-back to the legacy still-entrenched mindsets in many international investors mind of Africa’s Achilles heel of poor governance, culture of corruption, weak business environment and in-consistent levels of ethics and transparency.
Governance/board scandals and failures have and continue to plague every single county across the world and no matter how much you strengthen corporate governance codes and regulation, the human condition dictates that there will always be a percentage of boards and executive teams that lose their way badly.
What is clear is that where you drive sustained improvements in the quality and effectiveness of boards, you not only reduce the number of board failures but importantly strengthen organisations, in both the private and public sector, to excel, to drive sustained success for not only their own shareholders and stakeholders but also help “to raise all boats” in terms of East Africa developing a new reputation for excellence in corporate governance and board effectiveness.
Co-authored by Kieran Moynihan, Zia Manji and Amar Vidyarthi as the first article in partnership between Board Excellence and Career Connections.
Kieran Moynihan is the Managing Partner of Board Excellence (www.board-excellence.com) , a leading international board consulting practice, supporting boards & directors in Ireland, the UK and internationally, excel in effectiveness, performance and corporate governance.
Zia Manji is the Managing Director of Career Connections (www.careerconnectionsltd.com), a leading people consulting firm, offering board consulting practice, executive search, talent advisory, leadership development and coaching services in East Africa.
Amar Vidyarthi is a Client Partner of Career Connections (www.careerconnectionsltd.com), and leads the Executive Search and Board Practice.
All rights reserved. 2024
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