Bothwell P. Nyajeka
I HAVE sat on a number of boards over the years and I fully appreciate the importance of independent non-executive directors (INEDs). It is good corporate governance practice to have directors who are independent with no vested interests in the company and who are not controlled by management or shareholders. INEDs ensure that the board is able to exercise objective judgement on matters affecting the organisation.
Most governance frameworks define independence largely by what a director is not. An independent non- executive director cannot be an executive, related to the chief executive officer, a significant shareholder, or bound by relationships that compromise objective judgement.
Banks, bank holding companies, asset management companies, insurance companies, pension funds and State Owned Enterprises in Zimbabwe operate under regulator driven governance frameworks that prescribe INED representation, and compliance is a must.
From my years of experience, I have observed that a company can comply with every one of these requirements and still not have a genuinely independent board. I have been on boards where individuals ticked every box needed to establish independence on paper, but did not participate during board debates and did not speak up when they did not agree with a board position. At times you would only know of their position after the board meeting during discussions in the car park.
The reasons for not speaking up rarely show up on a declaration of interest form. It could be a strong social bond with a senior executive or controlling shareholder, an old favour owed and never spoken of. It could also be a longstanding professional network which would be awkward to jeopardise, or simply a reluctance to rock the boat and lose a board seat one has grown to enjoy.
This is why I have come to believe that real independence is, first and foremost, a mindset, that is,the courage to challenge, the clarity to question, and the freedom to think for yourself regardless of who is sitting across the table. Without these qualities, even a board full of technically independent directors can become a rubber stamp, despite how impressive the directors’ CVs look on paper.
In addition, independence is nothing without knowledge. Zimbabwe’s corporate history has its share of boards that looked properly constituted yet failed to prevent disastrous decisions, including insider loans that turned non-performing and resulted in the collapse of the financial institutions. Having fully independent directors in the boardroom guarantees nothing on its own. Directors must understand the business, the industry, the financial statements and the risks and know how to probe beneath a polished management presentation rather than simply accepting it.
I have also experienced situations where when a company is performing well, everyone is glad to be identified as a director and the moment serious trouble starts, some INEDs resign. There are, of course, legitimate reasons to resign, and no director should remain indefinitely once continuing has genuinely become untenable. However, resignation should never become a convenient exit from accountability the moment a company gets into tough times.
From my experience, director independence rests on four things. First, it requires a courageous mindset, willing to speak truth to power and resist groupthink even when it would be easier to go along with everyone in the boardroom. Second, it demands a strong grasp of the company’s industry, finances, strategy and risks to make an informed contribution. Third, it needs freedom from the social, professional and financial ties that quietly shape judgement without ever appearing on the conflict of interest disclosure form. Finally, it involves preparing properly for board meetings, interrogating information, following up on implementation, and accepting the consequences that come with the decisions taken.
I have also learnt that independence is not the end goal. Stronger oversight, and an effective governance process are. INED appointments should not be treated as a compliance exercise. Board nominations should not only be based on the question “who qualifies as independent” but also “what competence and judgement does this person bring to our board?” In addition, companies should also invest in induction and continuous director training and development.
Above all, boards must learn to embrace dissent. Directors should feel safe and free to disagree, ask uncomfortable questions, and occasionally say “no” without being branded disloyal for it.
Finally, in my opinion, a true independent director is not one who just satisfies the technical requirements for independence, but someone who has the capacity to think and act independently once in the boardroom. Because ultimately, independence is not determined by the boxes ticked before entering the boardroom, it is demonstrated by what a director is prepared to do once inside it.
l Nyajeka is a business consultant and board advisor. He has vast experience as a corporate executive and has sat on various boards in Zimbabwe, Botswana, South Africa and Uganda. He is currently chairman of ACR Solutions and is also a seasoned trainer and facilitator for the Institute of Directors Zimbabwe (IoDZ). For business consulting, board advisory and executive coaching services Email him on: bnyajeka@acr4solutions.com