Flawed Boards or Sounding Boards
The credit crunch crisis … Should the directors of the banking institutions have seen it coming? Of course they should! Questioning and recording the question is the right and a legal requirement of a director. Nodding dogs and group think are key elements of failure on a commercial business board. Remember the Enron disaster?
The 2006 Companies Act requires board members to take into account the needs of the stakeholders yet exercise independent thinking and advice. I wonder how much foresight the Government had when they created this Act given the Credit Crisis that emerged the following year.
Due to the Act, there can be an over focus on compliance which can stymie the vision for your company. It is necessary to get the balance right between the looking forward and what’s happening now. So for many businesses, a non executive director serves as a valuable and impartial sounding board.
They don’t have any relationship with the company or its employees and they don’t have any part in the day-to-day running of the organisation. The effective non-executive ensures that the company is operating to its full potential and that its interests are protected without having to worry about internal politics.
The benefits include:
- The company gets an outsiders perspective
- The spotting of opportunities and flagging of problems that the management hasn’t noticed
- The offering of advice and guidance as a mentor
- The tapping into the Non-Execs network of contacts
- The establishing of procedures and policies that comply with legislation and government regulations
- The legitimate questioning of the financial status of the company
I particularly like the last point. Many years ago, as the MD of Excel Clothing, it would have been really useful to have the challenge of someone outside the business, in particular around the validity of some of the survival strategies I was attempting to implement. Sometimes friendly fire doesn’t need to be fatal, especially when you know that the artillery is on your side. Who have you got challenging you with your business decisions?
PS. If you are interested in finding out a bit more, there is an excellent book produced by the Institute of Directors IoD The Directors Handbook and The Effective Director – which includes some brilliant checklists.