Bothwell P. Nyajeka
OVER the years, I have been involved in several board and corporate turnaround assignments. In my interactions with management, directors and shareholders I have found out that one of the critical assumptions on which most boards operate is trust.
This trust operates in every direction. Board members assume they can trust the information presented by management. Shareholders assume directors will protect their interests. The chief executive assumes the chairperson will treat sensitive information fairly. Finally, directors assume their colleagues will honour the confidentiality of board discussions.
However, when I listen carefully to what directors say outside the boardroom, and consider how often confidential board discussions leak, I begin to question whether this assumption holds.
On the surface, inside the boardroom, directors are polite and agreeable. They address one another respectfully, and avoid open confrontation. Behind the scenes, however, the dynamic changes. Some directors and managers question the competence, motives, or integrity of their colleagues. Others complain that information is being withheld, decisions are predetermined or certain directors serve interests other than those of the company.
Over time I have also learnt that people can be nice to one another without trusting one another. For instance, a board can hold orderly meetings while serious suspicion exists beneath the surface. Apparent harmony may simply mean that directors have chosen not to express their real concerns.
Trust is the essential tissue of effective governance. When it breaks down, the risk of boardroom conflict, poor decisions and organisational failure rises. Trust can be defined as confident reliance on the character, ability or truth of another person. In the boardroom, it rests on three foundations: competence, integrity and benevolence. Yet, while it takes a long time to build, just one concealed interest, misleading report, broken confidence or unexplained decision can destroy it.
At corporate level, trust must exist across several relationships. The most fundamental is between shareholders and the board. Shareholders entrust the board with authority to direct and oversee the company. They expect directors to protect the company’s interests, use its resources responsibly and hold management accountable. That trust weakens when shareholders feel excluded, do not get information about the company or learn of major developments through informal channels. It is also damaged when the board appears to disregard legitimate shareholder concerns, or when directors seem more loyal to management than to the organisation itself.
In my experience, one of the most effective way of building and maintaing trust with shareholders is engagement. The engagement with shareholders works best when it is formal, structured and diarised, rather than left to occasional or crisis driven communication. Ideally, the chairperson and relevant directors should meet shareholders at least twice a year – once to discuss strategy, and once to review year end performance and future outlook. These sessions allow the board to explain its thinking and hear expectations before misalignment becomes a dispute. Crucially, the chairperson should initiate these engagements even if a shareholder representative sits on the board, as some representatives fail to fully brief their principals after meetings. However, the engagements must not become a route for shareholders to instruct management directly. The purpose is alignment, not interference.
The chairperson must also cultivate trust with non-executive directors. Running a company is a partnership between executive and non-executive directors, even though their responsibilities differ. Non-executives provide independent oversight and constructive challenge, but they must also understand the company well enough to contribute to its strategy. The chairperson should make sure they feel included and valued, which requires adequate information, proper induction and access to key executives beyond the formal board pack. A director who feels excluded may become suspicious or disengaged, or rely on informal sources and create competing versions of the truth. The chairperson should also create room for directors to raise concerns privately, while making sure private conversations never become an alternative boardroom where alliances form and decisions are quietly concluded.
Equally critical is the relationship between the chairperson and the chief executive, as these two individuals lead the engines that drive a company. The chief executive leads management and is accountable for execution. The chairperson leads the board and ensures it discharges its governance responsibilities. The quality of the relationship between them shapes the quality of communication between management and the board. Where trust exists, the chief executive speaks openly about the company’s challenges, and the chairperson can guide which matters need board attention. This lets the board oversee meaningfully without micromanaging.
Trust among directors is essential for robust participation and constructive disagreement. Without it, directors protect themselves. They say less, avoid difficult questions and let decisions pass without challenge, keeping their honest opinions for conversations outside the boardroom.
Lastly, there is trust between the board and management. Management must trust that directors will use information responsibly and will not humiliate executives for reporting problems. Directors must trust that management will provide complete, balanced and timely information. Directors should challenge firmly but fairly, and distinguish between an honest business setback, poor judgement, negligence and deliberate misconduct. Treating every adverse outcome as incompetence encourages management to conceal risk.
From my experience, trust develops through repeated experience. Boards should begin by clarifying roles, because many trust problems arise from different expectations about who decides what. They should agree standards of behaviour on confidentiality, conflicts of interest, respectful challenge, collective responsibility and communication outside meetings. Management should report bad news with the same discipline as good news, and directors should refrain from requesting information unrelated to their governance duties.
The chairperson should ensure that dissenting directors receive a fair hearing, and the minutes should record material concerns accurately. Directors must keep their commitments, and conflicts of interest must be declared early, because nothing destroys trust faster than discovering that a colleague took part in a decision while concealing a personal interest. Boards should also evaluate relationships and behaviour, not only structures and compliance, by asking whether members feel safe to challenge, whether management reports problems openly and whether the chairperson treats different views fairly.
Ultimately, a board should trust management while verifying performance through credible information and assurance. Shareholders should trust the board while receiving transparent reports. Directors should trust one another while declaring interests and accepting collective responsibility.
l Nyajeka is a business turnaround, corporate strategy and governance consultant. He is also a seasoned facilitator with the Institute of Directors, Zimbabwe and chairman of ACR Solutions. For business turnaround, corporate strategy development and board advisory services you can contact him on bnyajeka@acr4solutions. com