The two broad dimensions of corporate governance pertain to; the monitoring of management performance and ensuring management accountability to shareholders, and the governance structures and processes to motivate managerial behaviour towards increasing the wealth of the firm (Adendorff, 2004; Lane, Astrachan, Keyt & McMillan, 2006).
3.3.4.1 Board of directors
The original intent for having a board of directors was to have a group of individuals, independent from management, with the primary purpose of protecting the interests of shareholders who, due to corporate structure, are not always involved in the daily management of the business (Robbins & Coulter, 2005).
The board of directors is responsible for decision-making within the organisation, for the strategic direction and ultimately, for the business’s success (Van den Heuvel et al, 2006; Hough et al, 2008; Johanson, 2008; Nordqvist & Melin, 2010).
The board of directors delegates authority to board committees and management, who then implement strategies as defined by the board (Adendorff, 2004; Lane et al, 2006; Hough et al, 2008). The usual committees are the audit, remuneration, nomination committees and executive (Hough et al, 2008; Roy, 2009). Strategic, governance and risk committees are also gaining popularity. It is recommended that non-executive directors should always chair a committee, and that the board chairperson be an independent non-executive (Hough et al, 2008; King, 2002; King, 2009).
The board is also responsible for defining the company’s vision and mission, values governing daily activities and for identifying relevant stakeholders and their needs, and developing strategies to ensure growth (Nordqvist & Melin, 2010). The board must be sufficiently knowledgeable about operations to address enquiries, retain an objective
long-term view and remain focussed on the needs of the business whilst behaving responsibly towards stakeholders (Adendorff, 2004; Hough et al, 2008; King, 2009).
Additional roles fulfilled by board members are networking, representing the company and enhancing the company’s status and reputation (Van den Heuvel et al, 2006; Lester & Cannella, 2006; Hough et al, 2008). The board should ensure that the company conforms to policies and procedures, and makes objective assessments of situations and alternative evaluations. It is the board’s responsibility to oversee the performance of executive management (Van den Heuvel et al, 2006; Hough et al, 2008; Colarossi et al, 2008).
The board of directors’ composition usually consists of executive managers and non- executives. Non-executives act as strategic advisors and corporate watchdogs (Adendorff, 2004; Lane et al; King, 2002; King, 2009). There are various conflicting views regarding the extent to which non-executives or executives should dominate the board. The overall consensus is that an appropriate balance of executives and non- executives should be present and that non-executives play an important role in ensuring accountability (Adendorff, 2004; Hough et al, 2008; Chakrabarti et al, 2008). Board membership should reflect the balance of skills, experience and demographic diversity necessary to provide effective leadership and control (Hough et al, 2008).
It is recommended that the board of directors and their committees (Roy, 2009) should have a charter that is disclosed to relevant stakeholders and confirms their responsibility for adopting strategic plans, supervising managerial and operational performance, for determining policies and procedures to ensure the integrity of risk and control systems, and its philosophy on director selection, orientation and evaluation (Hough et al, 2008; King, 2002 King, 2009).
The rights and responsibilities of directors and chairpersons are stipulated in the national legislation, the articles of association and common law. Executive directors fulfil multiple roles in that they have a fiduciary role as a director and exercise control
over management, whilst as senior management are answerable to the board (Adendorff, 2004; Hough et al; 2008, King, 2002; King, 2009).
From the literature, it is recommended that there be a clear division of responsibility at the helm of the business, separating the roles of CEO and board chairman, and the board and management, to ensure a balance of power and authority (Lane et al, 2006 ; Colarossi et al, 2008; Zattoni & Cuomo, 2008; Johanson, 2008). The chairperson has to provide the essential checks and balances over the executive function of the organisation. It is further recommended that the role of the chairman be filled by an independent non-executive director (Brewster et al, 2008; Hough et al, 2008; King, 2002; King, 2009).
A company is deemed successful if it achieves long-term success. Some authors argue that business success will depend on the activities of the board. As a result of macro and micro environment variables, there are various means to achieving success. Boards must first define what success will be and then determine how effective it will be (Hough et al, 2008). The roles of the board and management must be distinguished from each other. Managers run the business; and balance between the board, non- executive directors, executive management and shareholders is needed (Hough et al, 2008; Lane et al, 2006).
Reasons for board failure cited are: micro managing the business; an ineffective nominating committee; the size of the board being either too large or too small (Lane et al, 2006); non-functioning committee structure indicating either unutilised or uncontrolled committees; no strategic, orientation or position rotation plans (Hough et al, 2008).
3.3.4.2 Committees
From the literature, the function of a committee is to guide, monitor and control governance actions pertaining to the designation of the committee. Some of the committees mentioned in the literature are the audit, executive, remuneration,
nomination, strategy, governance, social responsibility (Roy, 2009) and risk management committees (Hough et al, 2008; Zattoni & Cuomo, 2008; King, 2009).
According to the King III report, audit committees should be comprised completely of independent non-executive directors. The audit committee must be proficient in understanding integrated and financial reporting, sustainability issues, internal financial controls, corporate law and risk, internal and external audit processes, and the governance processes within the company (King, 2009; PricewaterhouseCoopers, 2009).
The nominating committee duties include setting boards and committee performance goals, nominating directors and committee members, and monitoring board composition and operations (Lane et al, 2006).
The executive committee should facilitate effective and efficient decision-making (Cullen, 2007). The CEO appointed should be able to shape the organisation’s strategy and culture. As the board does not meet regularly, it is recommended that top management and the CEO formulate business strategy for the board’s evaluation and approval insuring synergy with the overall organisational strategies (Hough et al, 2008).