Selecting members of the Board of Directors

Posted by: Amby Okolo Comments: 0 0 Post Date: September 3, 2019

By law, every business organisation is required to elect, select or nominate people who are expected to steer the ship of the organisation. These people typically are known as the members of the Board of Directors. It is not strange to hear of board room politics, in-fighting within the board or division within the board.

Who can or should be nominated as a member of the board of your organisation? What qualities should they possess? Are the members of the board entitled to remuneration?

Background.

While reviewing the Business Plan of an Aspiring Entrepreneur who was seeking funds from a Venture Capitalist, I saw a comment that reads thus “I am the owner of the business and practically own the whole business. I only nominated my friend to be a Director in the Company just because the Companies and Allied Matters Act specifically directs that every Company must have at least two (2) directors…”

The Aspiring Entrepreneur went further to stress the point that this is deliberate as he does not want any interference in the decision making process. He wants to be in charge of the business and does not want external influences.

What the above statements means is that the entrepreneur wants to be in charge of his business and may not appreciate any advise, criticism (constructive or otherwise) suggestions etc. He is in charge and wants to be in charge! Whether this will work out to his advantage or note is not the subject of this article.

It is not strange that a lot of entrepreneurs still use the “Me, Mine, Myself and I” approach in business. The implication is that he/she is the sole shareholder (or at least 99% shareholding). This means that he votes himself/herself on to the board as a board member and ultimately hires himself/herself as the Managing Director, Chief Executive Officer and Chairman of the Board of Directors.

Obviously, there is nothing wrong in having absolute control of your business. However, the entrepreneur and the business suffer from lack of vibrant ideas and constructive criticism which will help the business to grow.

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One may want to ask, what are the roles of Directors in a Company?

A Company’s Board of Directors is expected to be the “Brain Trust” of the organisation. It is a place where smart people are meant to be working on the company instead of in it.

The Board’s primarily responsibility is to ensure that plans are made and implemented, and that the Company’s resources (both tangible and intangible) are effectively and optimally managed. Ultimately, it is responsible for the long-term viability of the company and the assurance that owners receive an adequate return on their investment. A seat as a member of the Board of Directors is not a place to teach someone about the business.

The bulk stops on the desk of the board!

Board Functions

The functions of the Board of Directors include the following:

  • Oversee the management of the Company;
  • Ensures that the company acts in the best interest of its shareholders;
  • Remain responsive to the needs of shareholders;
  • Be active mentors (help guide company’s managers);

The company and Allied Matters Act states that the Director of a company stands in a fiduciary relationship towards the company and shall observe the utmost good faith towards the company in any transaction with it or on its behalf. It went further to state that the personal interest of a director shall not conflict with any of his duties as a director under the Act.

The best companies are usually those with effective and functioning board members. There is usually a higher possibility of distractions when the there is an ineffective board or when the board members start forming “cliques” and “caucus”.

The objective of all entrepreneurs is to get good quality and unbiased advice from its board members in all areas where he/she may be deficient or needing additional support.

A mix of Executive Director (s) and non-Executive Director and /or Independent Directors is ideal. The independent directors are very important because there is a possibility that your employees, friends, and family members may tell you what you want to hear rather than the true position. Moreover, the independent director is likely to broaden the range of experience and skills which will be useful for the growth of the company.

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How do I select members of the Board of Directors?

In selecting the Board members, it is usually ideal to consider the following:

Expertise

It is important to consider what the company needs and seek for the required expertise. For example, a company considering a continental expansion, it would be appropriate to seek for someone who has managed a global/continental company prior to now or someone who has been on the board of a similar company that has pursued continental expansion. There are various cases of tax experts being on the board of a company primarily to address certain tax issues when they arise.

Experience

Preference may be given to one who already has board experience as he/she will clearly understand the intricacies of board and the oversight functions (audit, tax, strategy, finance, compliance etc). Although experience matters, you may also consider the Chief Finance Officers and/or Chief Operating Officers or Directors in large/big corporate organisations.

Size

The Companies & Allied Matters Act insists that all limited liability companies must have at least two (2) directors (excluding children); this is the minimum requirement.

In practice, an odd numbered Board is usually recommended. This is usually helpful in case of a tie during a vote. While there is no recommended maximum number, 5 board members is usually ideal; unless there are other compelling reasons. The bigger the number of board members, the more likely that they will form interest groups, camps, caucuses etc.

Participation

Preference should be given to people who can dedicate part of their time to the business. It will not be out of place to consider geographical location/proximity to the office; just in case there is an urgent need for a face-to-face meeting that may not wait till a full board meeting or for an issue that may not be resolved via the telephone/e mail.

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Diversity

The Board should be diversified as much as possible such that each board member complements the other. The diversification may be achieved using various factors such as sex/gender, experience, age, skills & expertise etc.

 

Generally, nominate people you respect and know that they understand the business and the competitive landscape. A diverse, experienced board can play a crucial role in the success of your business, offering outside experience and perspective that can help you avoid problems and take advantage of opportunities. Choose your board wisely, and it can help guide your company to substantial growth.

On a general be sure to nominate people:

  • Whom you respect
  • Who can help the business grow and succeed.
  • Who understand the business and the competitive landscape.

The Companies & Allied Matters Act is specific on the following:

  • Persons more than Seventy (70) years of age; needs special resolution;
  • Person of unsound mind or a lunatic; should not be nominated;
  • Infants (i.e. person under the age of 18 years); requires 2 adults on the board to be nominated.
  • An insolvent person; should not be nominated;
  • Corporation; Only representative of corporations can be appointed.

Remuneration

In as much as a Company is not bound to pay remuneration to its directors, it is strongly recommended that Directors be remunerated. The amount to be paid is dependent on the Company’s resources and as approved by the Company shareholders in a general meeting. If a Company wants to attract quality Directors that will devote their time, talent, energy etc to the Company, then it must be ready to remunerate the Board members.

The directors may also be paid all travelling, hotel and other expenses properly incurred by them in attending and returning from meetings of the directors or any committee of the directors or general meetings of the company or in connection with the business of the company.

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