Global Business substance and the non-executive director

As a non-executive board director, I have been thinking a lot lately about what the role entails in today’s increasing requirement of substance in our global business sector. The international business climate as well as the increased scrutiny on jurisdictions like ours, the nature of what it takes to be a responsible board member has changed. Simply relying on the management company’s team and offering an occasional word of wisdom or direction is not sufficient. Non-executive board directors today need to be proactive in their approach to ensuring that the organisations they serve do not simply survive but thrive, even in economically difficult conditions. The boards on which they serve should demand no less of them than that.

That said the challenges imposed by the global business sector are of even more demanding nature. The Financial Services Commission (FSC) has very recently come out with a circular letter ‘to remind directors of all its licensees and reportingissuers of their duties and obligations under the law’. A close look at the letter sees the highlight of four aspects put forward as barometers to judge whether directors have the capacity to perform their duties – qualification and experience, independence of mind, judgement and time commitment.

Qualification and experience remain the main aspect to bring substance to the non-executive director’s role for them to be able to ask hard and difficult questions, challenge the status quo, and step up to assist in areas where they can. Of course all such deliberations must be recorded and minuted if ever there is a challenge from any revenue authorities or for that matter in case of legal issues. The mantra must be documents, documents and documents.

Understanding relationships and roles of the stakeholders is vital. In the global business context the stakeholders are very often spread out. The investors would be in one country, the investees in another, the bank in a third and not to forget the all-important role of the local management company. The management company is the one which coordinates and ensures the company runs smoothly in our context. Active board members need to reach out and engage the management company and vice versa. In my experience, this implies a number of different strategies.

First and foremost we need to be able to challenge. Qualification and experience again crops up. While we will and must understand the nature of the business of the company, no two entities are similar. We need to be able to reach out to the stakeholders, the shareholders, the other directors and get to know them outside of the structured board setting.

Second, this focus should not stop at the board room. It is essential that today’s directors engage much more broadly. Being approachable and reaching out to the management company, they are able to talk with, and especially to listen to all levels of staff, understand and respect their views, and help fostering their commitment to the company by increasing their required knowhow. This also ensures that they remain on their toes knowing that they can be tested.

Third, we need not being satisfied with simply asking the questions, but doing something with the answers. An independent perspective here means being sensitive to internal factors that shape the organisation’s capacity to survive and thrive as it confronts current challenges and those that will surely arise in the future. I have a special interest in finance and the audit committee, so for me that means being comfortable asking hard questions about the numbers, past, present, and future.

Fourth, we need to be closely in touch with the outside world. Non-executive board directors need to keep an eye on the global factors that shape the broader environment in which their organisation operates—from government regulation to customer expectations and to a constantly changing competitive landscape. This outside independent perspective is indeed one of the greatest values board members can bring to the table. Keeping on top of these developments is not always easy, but it is necessary, and, in our electronically and humanly networked world, possible.

Going to the board room with the understanding and information accumulated are the baseline requirements for the non-executive director to substantiate his role. Yet, all this can only be useful if non-executive board directors are also part of creating a safe environment for open, critical, constructive conversation to move the organisation to the next level. There will then be no room for holding back opinions if something is obviously wrong. But then not just say things in ways that are comfortable for themselves, but say them in ways they will be heard and listened to. Above all, they do not just say things for their own sake, but because they are important and add value to a discussion that is focused on benefitting the organisation and not the individual that says something.

Non-executive directors are today due to be engaged and accountable. Substance comes through this. A healthy board room must be a place of active constructive discussion. Today’s director must constantly strive to have the best possible understanding of the business the organisation is in because this is one he wants to be part of.