RSM Australia

Non-Executive Directors and Good Governance - What Can Stand in the Way?

Major corporate failings that have dominated the media in recent years including safeguarding, whistleblowing and Board transparency have raised serious concerns for stakeholders including regulators, shareholders, employees and the non-executive community, with questions being asked regarding how to improve governance to address these and other issues.

A Board made up of majority non-executive and independent directors is seen, both in Australia and globally, as good governance practice to ensure Board independence.asset_19.png

However, the need for independent oversight and constructive challenge in the Boardroom places increasing pressure and a spotlight on non-executive directors and Board sub-committees.

 

Here we outline some poor Boardroom practices that should cause concern or raise alarm bells for non-executive directors.

These practices should prompt non-executive directors to use their right to challenge and their role as a critical friend, to ensure that, ultimately, they are able to effectively exercise the objective standard of care expected of their position and contribute to an improved corporate governance landscape.

  1. A dominant Chief Executive Officer (CEO) that is difficult to work with and will not listen to advice.

  2. Poor Board meeting agendas, minutes or Board papers containing information that is too detailed, or operationally focussed, rather than outlining broad organisational performance aspects with a strong risk and governance overlay

  3. Board meetings that are dominated or driven by some directors with others (particularly non-executive directors) choosing to not challenge or actively participate.

  4. The critical roles of both CEO and Chair of the Board are held by the same individual.

  5. Non-executive directors who have held their position for a long time or a Board that has not had any change in membership over an extended period

  6. Non-executive directors with inadequate or no understanding of the organisation and who are unable to challenge or benchmark against other similar organisations.

  7. A Board that lacks diversity in thought, skill-set and background to effectively consider all angles and challenge mind-set and decisions.

  8. The impact of the Board on the organisation and its stakeholders is not measured or understood

  9. An Audit Committee that doesn’t challenge management or support external/internal auditors, or other regulators, or isn’t made up of members with the requisite skills and backgrounds.

  10. Reporting is unclear, unrealistic and fails to provide clear information to arm non-executive directors with the knowledge and background needed to make reasonable judgments and to effectively monitor the operations of the organisation as well the performance of executive and senior management

 

All directors, whether executive or non-executive play a crucial role in the success of an organisation.

In the final report of the much-publicised Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Commissioner Hayne emphasised that having access to the right information to enable directors to effectively carry-out theirasset_24.png duties, as well as a Board that can challenge management, are key principles of good governance.


For more information 

No matter what sector an organisation belongs to, if you are an executive member of a Board, a non-executive director, or are looking to secure your next director role, these two simple principles provide a good foundation and guidance to question if you have the right training and awareness to carry out your duties effectively..
For more information please contact your local RSM office. 

This article was adapted from an article published on the RSM UK website on 8 October 2019.

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