Refreshing your board

ZimCode Secretariat
Chapter 3 of the ZimCode addresses the Board of Directors, and sections 104 up to 107 highlights the maximum terms that an independent director can sit on the board. The ZimCode encourages companies to prioritise board refreshments. Board refreshment simply means the periodic assessment and the continuous improvement of a board’s capacity to govern.It is continuous improvement of the board’s capability by focusing on composition, leadership, cultural dynamics, education, succession and the board’s strategic impact.

The refreshment entails director replacement and it is expected to equip the boards to fulfil its fiduciary duties as well as to deliver competitive advantage to the company.

The role of the board is to give strategic guidance to management and company in general, it follows that the directors have to be competent enough to be continuously adding value to board deliberations and actions.

Therefore there is need for board renewal from time to time so that the board remains equipped to fulfil its mandate. It is unfortunate that board refreshments in many cases are often event driven rather than a continuous process that should be on the annual board calendar as a permanent task.

These ‘refreshments’ that are crisis management mechanisms often cost the company as all stakeholders often query why the board was keeping such incompetent director(s) for such a long time. In the same manner, age and term limits are also convenient triggers of board refreshment but a lot of time ticks away while waiting for the directors to retire or their term to expire.

According to section 104 of the ZimCode, “Any term exceeding nine years in aggregate for an independent non-executive director should be subjected to a particularly rigorous review by the Board with special focus on performance and any factors which may impair his or her independence.

The review must also take into account the need for refreshing the Board by making new appointments”.

Section 105, “An independent non-executive director may serve more than twelve years if, after an independent assessment by the Board, there are no relationships or circumstances likely to affect the director’s independence and decision making, such as impairment of character and judgment by long service. A statement to this effect should be included in the integrated report.

Although independent non-executive directors may surpass the term limits highlighted above, the pertinent area that the ZimCode emphasises is performance.

Directors are appointed to the board to govern and if it’s completely justifiable that after twelve good years they are still capable of adding value to the company as substantiated by independent reviews, then so be it.

As much as long-term directors can give substance to the board, research around the world has also shown that lengthy director tenure can diminish a director’s ability to serve as an independent steward.

This can be attributed to many factors such as too much collegiality, enmeshed relationships that are established over time, diminishing returns and general fatigue and waning interest among directors.

It has been noted that long director tenure is problematic. It limits board’s opportunities to refresh membership and board actions become perfunctory, with stale director judgments as insights and boldness are lost.

The above highlights that companies do not often implement their succession planning as advised by the ZimCode in sections 120 (l) and 131 (b). Succession is often discussed but is rarely practiced formally.

It then leaves room for directors to negotiate for service extension which is not necessitated by the need for their exceptional qualities on the board but by their sense of entitlement.

If the succession planning is followed through, the board through its nomination committee should advise on getting weak contributors off the board and adding more competent ones and create room for younger, female and more global candidates with more strategic agility.

The board chair should be the catalyst for board refreshment. He/she does not have to play ‘nice’ governance whereby the chair avoids talking about refreshment so as not to ruffle furthers.

The board chair doesn’t have to wait for retirements and expiry of terms, but should facilitate board refreshment as often as the needs demand, with the hindsight to give the board room to settle.

Change is always hard and conflicts may erupt during such phases but it has to be well managed for good governance to occur.

Board refreshment has to be guided by the need to inject fresh thinking and diverse perspectives and reinvigorating board dynamics. Well-orchestrated director transitions often overcome entrenchment.

For more information on the ZimCode contact: secretariat@nationalcodeoncg.co.zw