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
www.kfmconsultants.com
