Challenges and Solutions at the Boardrooms
What takes place in corporate boardrooms? The board is where crucial decisions are made regarding multi-million global ventures. Directors spend long nerve-wracking hours to resolve problems that may spell the success or failure of the company. In the present market environment, boards should always be upbeat and dedicated to the industry. The board’s responsibilities are quite daunting. Some of these include top-level control; providing directions for management; evaluating information; and, making inquiries. The desired outcome from actions of the board is to guarantee sustained growth, capabilities and legacy of the corporate organization.
Challenges will always confront the board. This will always call for a lot of heads-up and leadership savvy. Corporate leaders should exude energy as shown by participation in boardroom discussions. The fact is the chairman, directors and chief executive and financial officers must cope with progressively significant issues in managing the enterprise for interim accomplishments and incremental shareholder value. Boards must strike a balance between business operations for success against the burden of public reporting, authority and responsibilities in stakeholder management.
First and foremost, there are numerous uncertainties as a result of global economic volatility. The world economy and individual financial systems of nations may be up at one time and down at the next. The uncertainty of international markets may become a nightmare for most boards. This will entail strategic planning at the topmost tier, cost controls and monetary risk management. It is best for directors to pinpoint effective techniques to augment operations and lessen risks in support of overall objectives. Planning for the corporation translates to delineate decisions that must be made promptly.
Cyber security is another vital area as data infringement has become rampant nowadays. If you read media reports worldwide, you will always see cases of information theft that have caused major problems for huge conglomerates. This is a problem that should not be taken lightly at the boardroom level considering the harm that break-ins in electronic security can produce.
For instance, SAUDI ARAMCO, the biggest producer of oil and gas in the world, became the victim of successive cyber attacks in August of 2012. This breach which was meant to cripple its oil production operations affected approximately 30,000 company computers. A self- duplicating virus contaminated the Windows-based equipment. It took several weeks before the oil firm recovered from this disruption. Worse, this virus (dubbed as SHAMROON) did only lead to the loss of production and drilling data. It also spread to other oil/gas corporations’ networks like RASGAS.
The key is to put together an intangible blueprint for Internet safety measures and deterrent against hackers, viruses and contraventions. The primary step is to create a defense program which can follow the format of the framework for enhancing critical infrastructure web security. These standards can help companies tackle related hazards to information technology systems.
After this, managers and employees must learn the expertise to implement this grand design. Once the advanced plan is primed, the corporation should customize its cyber security routine to the organization’s exclusive IT environment. The compulsory cyber risk education must begin at the level of corporate board of directors. It is highly possible that board lacks proficiency and support required to add management of the corporation’s cyber-risk campaign to their previously extensive agenda. The board can also establish an independent project committee in the board.
A third option is to employ fully competent IT specialists as well as build a systematic chain of command. Eligible technical staff can carry out the board's cyber security instructions. Further than getting the best people, it is mandatory to maintain a clear understanding of primary responsibilities for cyber security risk supervision and ascertaining capability of the company's cyber threat management approach. The value of a comprehensible chain-of-command and board position committed to IT security is very useful.
Business Acumen and Independence
The board’s business good judgment cannot and should not be compromised. Board members must exhibit the wisdom in making decisions regarding expansion, upgrades and exploration. Look at the GAZPROM experience in 2001. One of the most powerful corporations wanted to allocate and use up $5.2 billion for various improvement programs. Unfortunately, the Russian Government objected to this plan.
In a cabinet meeting devoted solely to the state-controlled company’s 2002 investment program led by President Vladimir Putin, the government questioned GAZPROM’s capacity to fill up the cash disparity between estimated income and required investments. It was a serious setback for the energy firm’s leadership. The government never intervened in the internal affairs of the corporation until the Russian President facilitated a boardroom takeover. Putin appointed a faithful ally for the interests of the government. This was a clear case of interference that undermined the independence of GAZPROM. Moreover, transparency was lost since a government-controlled chairman can interfere with decisions of the board.
Corporate board of directors shoulder the responsibility of making sure that proper risk management systems are in position. At the same time, the board must ensure that financial statements have been audited by the books. It should also confirm that top management is receptive to and oversees non-financial risks correctly. Stakeholder engagement presents a more expansive view of possible threats. Non-financial refers to essential concerns like effects of climate change or large-scale supply chain management with financial consequences.
The implicit consequences of nonfinancial risks can be the most difficult to take care of. One significant example is the perceived corporate governance debacle at ENRON. What really happened?
The corporate board permitted a so-called “disclosure policy” that eventually contributed to deficiency of financial transparency. It also gave an approval for a compensation scheme that made managerial remuneration vulnerable to changes in share prices. This happened despite the board’s reluctance to take part in other facets of corporate supervision like constant monitoring of business results and financial regulatory practices. The principal factor of corporate governance is to guarantee the liability of boards of directors.
The procedure of stakeholder engagement adds to overall responsibility and promotes inquiries and feedback about company operations. In the ENRON experience, reactions/comments from the media and financial community regarding the corporation’s reporting system should have served as initial notification to the board.
ENRON’s dramatic fall was partly attributed to the refusal of the board unwillingness to call for transparency and liability as well as curtail undue haughtiness.
Boards must always take into account that integrity and relationship issues are basic to business operations. Stakeholder engagement must be accorded due thought just like channels of communication financial entities. Consistent interaction with major shareholders help a company understand the clamor of investors and how different publics look at the corporation. Stakeholder engagement is important in helping companies understand the expectations of societies. This outcome can generate obvious financial benefits from enhanced staff motivation or sound reputation.
At this point, it is vital to keep in mind the concept of corporate governance which denotes the systems by which corporations are regulate and directed. There are factors associated with this form of power. These include structures and operations of the board of directors; pecuniary reporting, transparency and checks; division of powers; and rights of minority shareowners. The platform is also acknowledged as a way of dealing with interests of competition, corporate citizenship as well as and social and ecological accountability. Lastly, it is deemed as a method of spurring efficiency and fighting dishonesty.
Enterprises can downgrade economic, prominence and political risks through regular interaction with stakeholders. This is recommended for companies with highly discernible and prominent trademarks which can be more susceptible to reputational hazards. An equally crucial element is the act of understanding welfare of rank and file workers; present and prospective clients; non-governmental organizations; business associates; and, politicians.
This will help the organization to handle green concerns and social prospects better. This can bring about diminished hazards of brand elimination; more access to capital and insurance, cost savings; and, less exposure to regulatory amendments. Engagement will support companies understanding of stakeholders evolving expectations and needs. It will assist them in identifying issues that can turn serious or basically lead to changes in business operations.
Boards’ Best Practices
The board of directors must be board members oriented regarding engagement practices and effects since this engagement with stakeholders is a component of conscientious and principled management. There should be focus on both financial and non-monetary concerns. This also encompasses transparency with stakeholders and providing information about measures taken by the organization emanating from reciprocated dialogues conducted by way of formal and casual engagement courses of action.
It is worthwhile to quote the book by Peter Zollinger (Stakeholder Engagement and the Board: Integrating Best Governance Practices - http://www.ifc.org/wps/wcm/
“Accepting accountability to those it has an impact on (its stakeholders) does not mean that an organization has to do everything that a stakeholder requests, nor that it loses the responsibility to make its own decisions. Inclusivity requires a defined process of engagement and participation that provides comprehensive and balanced involvement and results in strategies, plans, actions and outcomes that address and respond to issues and impacts in accountability.”
The corporate boardroom is more than a high-level body of business personalities with company interests. Each member of the board has a moral responsibility to the company, employees, stakeholders, and clients. The board is the source of decisions that will impact not only the corporation but the community as well. The board has a critical role to play. There will always be problems and challenges. Fortunately, there are also solutions at hand. This is where the expertise and ethical responsibility of these board members should be displayed.