Who is being appointed to your board, and why?

Aug 23, 2010 Business Daily

“…when Lehman (Brothers) was first being spun out of American Express Co. Harvey Golub, then-chairman of American Express, was giving the AmEx board a presentation about the benefits of the spinoff of the investment banking firm…”The presentation — a basic rundown of the businesses within Lehman, and what the economics looked like going forward — went over well, and the board signed off on the deal. Two memorable moments occurred. “First, when former Secretary of State Henry Kissinger, then on the American Express board, opened a sweetener packet, emptied it into his iced tea, then stirred the beverage with his pencil — eraser end first.” The second was when another board member, former U.S. President Gerald Ford, asked Golub if he could please explain the difference between equity and revenue.”

Jim Kristie, Directors & Boards (June 2010)

So former US president Gerald Ford did not know the difference between EQUITY and REVENUE. Surprised? Don’t be. He was on that board for entirely different reasons: for his lobbying power and reach within the networks of government. This was the era of boards being mere rubber-stamps for all-powerful chairmen and CEOs, and directors were appointed merely because they were cronies or necessary evils.

Not so long ago, I was asked to run a strategy retreat for a leading Kenyan board. The event was held, as they usually are, at a plush retreat next to a mountain. The chairman introduced the meeting, welcomed me, and then leaned back in his chair and…dozed off. And so he stayed, oblivious to the proceedings, snoring loudly, for the next two hours. He woke with a start when we were in the midst of our brainstorming, and promptly announced that it was time for a tea break…

What was interesting was how blatant his lack of interest in this board was. He made no attempt to pretend he had been awake, and showed not the slightest interest in the emerging strategy of the company he chaired. But this was at the height of the Nyayo era, when many major companies were forced to appoint political operators on their boards. There was no pretence about capabilities and skills – these people were on boards because they had to be.

A footnote: the company in question ran into severe difficulties not too long after – a failure that was laid at the door of poor corporate governance. Many ordinary shareholders lost their shirts.

We live in a different time. American Express cannot now entertain ignoramuses on its board, no matter how influential – and neither can any serious local company. Remember what happened to so many of those Nyayo-defiled companies – and to so many American financial powerhouses. Corporate governance is a big deal. A position on a board is not a mere trifle, a meeting or two, a good lunch at a good hotel here and there. It is a role of great responsibility, containing the duty to protect the interests of shareholders and to ensure that the organisation acts responsibly and correctly.

It also requires a fundamental duty of care: to ensure that all major decisions are arrived at after due diligence and after consideration of all available options. That is not something you are going to be able to do if you do not understand the basics of financial reporting – or sleep through the proceedings.

And so on East African boards today we cannot afford to look for those people we want to reward, or those we find convenient, or those who will open illicit doors for us. If we want to build world-beating companies; if we want to develop our regional economic competitiveness; if we want to boost the living standards of all our people – we cannot any longer appoint cartoons on boards. Directors have to be able to steer a major enterprise to sustained prosperity. Nothing less will do.