A board of directors is a recognized group of people who jointly oversee the activities of an organization, which can be either a for-profit business, non-profit organization, or a government agency. A board of directors’ powers, duties and responsibilities are determined by government regulations (including the jurisdiction’s corporations law) and the organization’s own constitution and bylaws.
Corporate governance which is the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company’s relationship with all its stakeholders (financiers, customers, management, employees, shareholders, suppliers, government, community/public and customers).
The enormity of the responsibilities and liabilities of the Board makes the appointments to and memberships of boards not just a movement in higher social status but more importantly a serious business. Corporate failures are the resultant effect of the neglect of corporate governance roles and nonaccountability of the directors.
Certain anomalies or misjudgment of the boardrooms activities can lead to corporate failures. A scenario is where a CEO presented a contract proposal from another company he had interest to the Board without disclosing his interest and unknowingly the Board agreed and approved the contract.
Another interesting situation is when a CEO reportedly told her board that she wanted to take a portion of the company private, while continuing as CEO of both organizations and being paid separately by each. The board agreed. She subsequently offered to sell the private entity back to the public company, taking both profit and an investment banking fee in the transaction and the board agreed again.
An astonishing status quo was when after three years on the job, a very successful CEO asked his board to sign an employment contract for him. A clause in the contract stated that “conviction of a felony” would not be a ground for termination, unless the felony was directly and materially injurious to the company. The Board signed the contract.
These circumstances might appear to be far reaching. How about when there was deliberate overstatement of the company’s financial position over many years.
From the above, we can discern that a fundamental responsibility of directors is not to permit a conflict of interest to arise between their interest and that of the company they direct.
In the above scenario, the Board failed to ask relevant questions, ensure investigations are carried out, put control systems like whistleblowing procedures in place. It appears that everyone was making a lot of money and the directors were receiving side payments.
Corporate governance is about ensuring checks and balances, but in a situation where the Board charged with responsibility for direction and control of the company’s affairs is compromised or negligent, corporate failure is guaranteed. It is imperative for all stakeholders to be aware of the corporate governance role of the Board and certify due diligence.
Simbiat ‘Atoke’ Braimoh Habeebu (Legal Practitioner and Chartered Secretary)
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