Prerequisites for building quality boards of directors – 8

The article ends by advising against appointing board members by virtue of their positions and providing concluding remarks.

Proper compensation is essential not only in attracting individuals who are productive, responsible and accountable, but also in ensuring that they remain motivated and dedicated to their oversight and strategic roles.

Without appropriate remuneration, even highly qualified board members may struggle to commit fully to their responsibilities, potentially affecting the overall effectiveness of the board.

One practical approach can be drawn from Singapore’s model for public servants. By paying well, observing meritocracy in recruitment and holding board members accountable through assessments, organisations can create a system where incentives reinforce responsible behaviour.

Adequate remuneration signals the value placed on directors’ time and expertise, encouraging them to perform their duties diligently and ethically.

Board members’ sitting allowances and annual retainer fees must be competitive and reflect industry standards as well as the size of the organisation.

Boards are ultimate risk-takers and their compensation should acknowledge the time and efforts they devote to reviewing documents, attending meetings and providing strategic oversight.

Performance based bonuses, tied to the organisation’s success, can further incentivise commitment, while benefits such as medical insurance demonstrate that the organisation values their well-being.

By structuring compensation thoughtfully, the appointing authority ensures that board members remain motivated, focused and aligned with the organisation’s goals.

To emphasise the importance of linking talent with appropriate incentives, I recall an interaction with a certain board that requested higher remuneration to match what was paid in the industry.

The appointing authority responded firmly, “Your colleagues in the industry earned their positions through a competitive process, but you were appointed at the discretion of the appointing authority.

Therefore, you do not have the moral justification to demand higher incentives.” This response highlights the link between merit-based recruitment and justification for rewards, underscoring the need for fair and transparent processes in board appointments and compensation.

The appointment of a chairperson requires careful attention, particularly in government institutions. Unlike private companies, where chairpersons are typically selected by existing board members, in state-owned firms the chair is usually appointed by the Head of State.

I recommend that the position of chairperson be advertised and its recruitment follow the same rigorous process used for appointing board members, with two key additions.

First, the recruitment process should be supervised by appropriate government institutions, such as the office of the Chief Secretary, in consultation with the Treasury Registrar and any independent institutions that oversee directors.

Second, candidates should ideally have prior leadership experience, hold memberships in other boards and possess relevant knowledge of the industry in which the organisation operates.

For candidates without prior experience as a chairperson, simulations can be included in the interview process, accompanied by a probation period before final confirmation. These steps can be waived for those who have successfully chaired other boards or held significant leadership positions in related organisations.

To strengthen the overall governance framework, professional bodies involved with directors should be given legal authority, similar to accounting or other professional boards, to supervise recruitment, training and performance measurement.

Establishing strong institutes of directors, where aspiring directors undergo rigorous training, examinations and certification, will add substantial value to this critical role.

Their appointment, training and evaluation of board members must be managed by designated institutions with a clear legal mandate, ensuring that public organisations benefit from boards selected on merit rather than connections or favouritism.

Two citations are valuable here, quoting them from Mohamed Faris’ book The Productive Muslim pages 218 and 219, starting with the famous one from Peter Drucker, “What gets measured, gets managed.”

This statement underlines the importance of comprehensive and well managed boards of directors’ performance measurement. Einstein stated that, “Insanity is doing the same thing over and over again and expecting different results.” In order to improve, positive changes are necessary. 

If methods suggested in these articles are consistently applied, particularly in public institutions, they will ensure that boards are composed based on meritocracy rather than personal connections or favours.

By adopting the practices outlined, transparent appointments, rigorous training, well-articulated evaluation and merit-based incentives, boards of directors can become more productive, responsible and accountable.

Dr Muhsin Salim Masoud is a seasoned banker and academic, who has also served as managing director of the People’s Bank of Zanzibar and Amana Bank. [email protected]