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The Board of Directors – The stronghold of good governance in NPOs

Posted on 12 December, 2021 at 16:13

I never understood the gravity of following the rules and policies of good governance. The concept of employing a group of individuals who would sit for meetings and have a say in the everyday running of an organization, whilst they were never part of the daily processes made no sense to me. I thought a board of directors is a group of people who just earn money they hardly work. One time, I also thought a board is just surrounded by very old men because of those I usually saw attending board meetings in some organisations. The idea of a board was distorted to me until I witnessed a closer-to-home situation due to a dysfunctional board of directors. Even today, I still recall the events of that day as vividly as yesterday. My best friend and her mother, a very wealthy wife and daughter of a well-known businessman, suddenly stormed into our dining room, crying from the top of their lungs. All of us in the room were awakened and perplexed about what was happening. My first thought was, somebody had died. Still in awe of the situation, my young brother appeared with a scream in the room scaring us all. “Mama, see” He immediately froze when he saw the two females in the room, but it was too late. We all forgot about the sobbing ladies for a second and pipped onto his tablet. We watched the live video of Mr. Kameya, a very big and proud man, being dragged into the police van with handcuffs on his hands and reporters following behind saying something about the fraud and the collapse of Chai Holdings. I believe that was the most humiliating moment of his entire life, a man of such status. The spacious life of his precious family came crumbling down at their faces and they could not do anything but cry for their fate. Chai Holdings had been consecutively on the headlines for some time but least did we know that it was a slowly sinking ship. The company was announced insolvent, deep in corporate debts, and bankrupt due to countless fraudulent incidents, apparently done by Mr. Kameya who was both the CEO and Board Chairman of the company, together with his brother who was apparently, the accountant and a board member. Many lost their jobs, a family lost a breadwinner to prison, that night I witnessed what I would call a fall from grace.

A governance structure that is made up of a board of directors, does not only infer to the corporate world but to nonprofit organisations as well. As standalone entities run by a management that needs a board’s guidance and monitoring to not lose its intended direction, good governance must be a concern to nonprofits. At a policy level, there is a number of corporate governance codes and charters across all sectors of operations, with guidelines that clearly lay expectations and responsibilities of a BOD, and Zimbabwe is no exception. Despite the availability of literature, codes, and charters, both in soft and hard literature, a multitude of local, regional, and international companies and organisations collapse and the damage are despicable. As stakeholders of these organisations, we then begin to wonder: Where will be boards when organisations collapse? What kind of directors populates those boards? Were the directors aware of their duties or not? Before a culture has been cultivated, structures are put into place, these are the questions that need addressing.  A strong board with members that are well qualified, familiar with their roles and responsibilities, and capable of monitoring all organisation’s movements, should be elected.

Strong governance is reflected in processes, structures, culture, and rules that show transparent decision-making and recognition of regulatory obligations. Many organization put up boards as a front to appear to be on the right side of the law, which usually reflects in the future when issues such as insubordination, bankruptcy, employee turnover, and agency problems arise more than usual in a particular organization. To establish a board of directors that demonstrates fair and inclusive decision-making and appropriate participation by all members, rules, and regulations have to be followed in the selection of the board. This is the most critical part of a governance structure, which if not done well, the whole existence of an organization is futile.

In the Zimbabwean context, the National Code on Cooperate Governance is just but one example of articulate codes which aim at encouraging the adoption of high standards of corporate governance and the integration of decisions with strategy and sustainable development.  One of the highlights of this particular Code is the Governance of the Board of Directors. The Code meticulously outlines principles that pin good governance for the Board of Directors and even go the extra mile highlighting best practices from other Codes. Again, despite all of this, organisations and institutions in Zimbabwe have faced difficulties associated with board failure. The media has over the years been awash with scandalous headlines of companies like Air Zimbabwe, PSMAS, ZBC, African Renaissance Bank (AFRE), BCCI, UMB Bank, ENG Capital, and Barbican Bank who have collapsed or have been on the brink of collapse. The major cause of these corporate scandals has been centered on poor oversight and lack of proper monitoring of the CEO and executive directors by the board leading to corporate governance breaches. The recently proposed PVO Amendment Bill by the government of Zimbabwe stresses out also the issue of registration and establishment of proper boards that will be evaluated and disabled if found unfit for the purposes of an organization.

Following the 2001 Enron scandal, Houston-based commodities, energy, and service corporation were bankrupted by the CEO Jeff Skilling and the Former CEO Ken Lay. The two gentlemen kept huge debts off balance sheets under the noses of the board, until there was an internal whistleblower by Sherron Watkins after high stock prices had fueled external suspicions. The shareholders of the organization lost $74 billion, thousands of employees, and investors lost their retirement accounts, and many lost their jobs. Unfortunately, Lay died before serving time but Skilling got 24 years in prison. The company filed for bankruptcy.  The question still remains: where was the board when all of this took place?  

The board did not understand many of the transactions it was reviewing, and so it authorized high-risk accounting policies despite having been warned by their accountants that the policies ‘pushed the limits of acceptable accounting practices. The board also allowed excessive remuneration and did not follow its own code of ethics in allowing Enron’s CFO to transact business with the company. The board was reluctant to pursue issues and to ask hard questions.  The issue on Enron then takes us back to the first stage of its board establishment. The basis of the board establishment becomes questionable, as the board members were not qualified enough to understand their roles and responsibilities, let alone the transactions that they reviewed and approved.  A lazy board that does not ask questions is mostly comprised of members that in the context of nonprofits, are not funding partners, are not part of founding partners, and are those that do not understand the importance of establishing the organization from the beginning. Strong governance is a critical factor that funding bodies, donors, and investors consider when making funding decisions. Governance capability is closely aligned with the capacity to meet the objectives and aims, of an organization, and may affect an organization’s success or failure in attracting funding. Funding partners would be reluctant to offer funds only if they are guaranteed a structure that will exhaustively monitor the use of funds.

Haspeslagh (2010) contends that the main instrument of good organisational governance remains the role and responsibility of the organisational board. Abdullah and Nasir (2004) acknowledge that the board is the most powerful and cost-effective governance mechanism for monitoring management in pursuing activities that increase an organisation’s value. An effective board develops and promotes its collective vision of the organisations’ purpose, its culture, its values, and the behaviours it wishes to promote in pursuing its objectives. Not only do effective boards provide direction for the management, but an effective board must also demonstrate ethical leadership and display behaviours consistent with the culture and values it has defined for the organisation. Once the Boards do this, they inherently create a performance culture that drives value creation without exposing the organisation to excessive risk of value destruction.

KFM Consultants realized this gap in governance of nonprofits and saw it necessary to offer governance services to do with board establishment, board orientation, and reviews. In the period of engaging in corporate governance with a number of organizations over the years, more need to further emphasize this issue keeps arising. Organisations need to step up, review their boards, establish some if there is none, and eventually seek guidance in implementing this exercise.

By Passmore Muringai

KFM Accountant


NMap Technologies