This article discusses the roles and duties regarding the effective and steady stewardship of a board of directors, including management of workflow information.
The following questions should be asked (or demanded) by each board member from their organization:
- Ask for a written meeting agenda
- Study the agenda
- Ask for accurate and timely financial information
- Ask questions and request timely answers
- Strive for perfect attendance from all directors
- Dissent where warranted
- Call for recorded votes
- Demand accurate and timely minutes for all board and committee meetings
- Demand independent investigations when needed
- Blow whistles when warranted.
As everyone knows, managing an organization is not an easy undertaking. Successful companies employ a continuous process that addresses and acknowledges a constant flow of information. The primary focus of both the board and corporate management is to identify problems before they seriously constrict and assault the overall condition of their company. A recent case illustrates this. The company had been in business for over 35 years and for most of those years it operated in a prudent manner and was successful from a financial perspective. However, in recent years the company started experiencing liquidity problems, causing operational problems. These issues had a damaging impact on the company’s relationship with its consortium of banks.
The management team and board of directors chalked up little credibility with its bankers as evidenced by a placement of a series of forbearance agreements. These agreements placed certain restrictions on the company’s operations, including oversight by an independent advisor. Instead of working with the banks in an attempt to deal with the swirling financial issues, the company’s management and shareholder resisted efforts to resolve the company’s financial (liquidity) problems. Rather than working on the development of a strategy on the company’s long term survival, the board and management served as impediments to resolving the problems.
Any constructive efforts made by the management team to resolve the company’s problems were stonewalled by the following issues:
The shareholder had complete control of the board – three members of the board were insiders that worked for the company and three of the four outside directors were family members of the shareholder.
As a result of this structure, the shareholder had total control which resulted in a lack of independence on the part of the board.
The lack of adequate financial controls resulted in a forensic audit that revealed the owner had several million dollars of personal expenses that could not be substantiated as legitimate business expenses.
The lack of prudent oversight and financial controls resulted in the following :
Resignation of all the inside directors
Resignation of the company’s CFO due to potential liability regarding the quality of the company’s financial information
Resignation of the company’s independent auditors based on a question regarding the “going concern” concept.
Conclusion: Effective and serious stewardship as a director requires the board to have the courage to exercise savvy judgment independent of management. These types of issues will remain in the spotlight of public accountability with corporate governance failings and oversight issues leading to litigation and often will serve as a subject for a Wall Street Journal page-one article or Bloomberg online analysis.
With the threat of harm to reputation, costs of remedial action(s) required along with possible significant fines, an astute board cannot afford to make bonehead decisions. As new risks emerge and breed, success increasingly relies on the board to see the crises coming, to demand and evaluate the information needed to make critical business decisions and then, armed with that information, have the courage to carry through.