It is important that the chair fulfills its role effectively. Failure to do so may result in an inefficient board of directors and poor company performance.says South Africa's regulations have serious flaws that make them unhelpful Rehana Qasim.
Historically, the board chair has had a procedural and ceremonial role. This was a low bar that focused on the chair's role in the meeting.
But in recent years, their role in companies has evolved and become more complex and demanding. Possible reasons for this include the increasing burden of governance on companies worldwide, increased attention to strategic issues, and increased awareness of risk.
Chairs are now considered essential to effective corporate governance. They will be required to lead the board and fulfill its governance duties and responsibilities. In fact, the Global Board Culture Study considers the chair to be the “single biggest differentiator” between the best and most effective boards.
Effective boards demonstrate sound business judgment, have an independent perspective, are able to challenge management when necessary, and have the courage to ask the right questions and do the right thing.
It is important that the chair fulfills its role effectively. Failure to do so may result in an inefficient board of directors and poor company performance.
To varying degrees, each country has laws and corporate governance regulations that guide the regulation of work. However, not everyone does this properly. South Africa is a good example. Government legislation on this issue is insufficient and unclear.
My research as a professor of corporate law has shown that office regulation has several flaws. We outline some of them below and suggest ways you can deal with them.
Disadvantage
Contradiction. The South African Companies Act does not address the process for appointing a chairman. This results in variation between companies.
South Africa's corporate governance code, the King IV Report, recommends that the chair be an independent non-executive director. Independence means that a director has no interest, position, association or relationship that could give rise to undue influence or bias in decision-making.
However, it is not mandatory for companies not listed on the Johannesburg Stock Exchange to have an independent non-executive director as chair. In other words, the chairman of an unlisted company does not need to be a director. This is contrary to the recommendations of the King IV Report.
Qualifications: Although this role is demanding and requires complex skills, no professional qualifications are required for this role.
The chairperson must know the general procedures and principles of board meetings and shareholder meetings. You should also understand general company law and corporate governance principles. Desired skills for the chair include the ability to think strategically, communicate clearly, be a good listener, and have emotional intelligence. Examples of professional qualifications that may be useful to a chair include qualifications in corporate governance, company law, business administration, and accounting.
Term limit: There is no limit to the amount of time a chair can be used. Some hold positions for long periods of time.
For example, he was chairman of South African airline Comair Limited (now liquidated) for 46 years until shareholder activists publicly raised concerns about his independence at an annual general meeting. Following pressure from shareholders, the chairman resigned, forcing Comair Limited to replace him with an independent chairman.
Independence: An independent chair is important for fostering an open culture and gives the board room to consider diverse opinions. An independent chair is one who is objective and able to make free judgments. The chairman, who controls the board, can suppress dissent.
This is one reason why the King IV report recommends that the same person avoid holding both the CEO and chairman roles. In publicly traded companies, these roles must be separated to prevent too much power being concentrated in one person's hands.
King IV also recommends a three-year cooling-off period for outgoing CEOs before assuming the chairmanship. This ensures that the former CEO can act independently as Chairman of the Board.
However, not all companies follow this recommendation. For example, his CEO of investment holding company Long4Life Ltd, Brian Joffe, ignored the recommended cooling-off period and immediately resigned and moved to the chairman's office.
Responsibility is unclear. There is little guidance regarding the features and capabilities of the chair. South African courts also do not provide much guidance.
This makes it difficult for chairs to understand their responsibilities. If they don't play their role correctly, it can lead to bad decisions. This may affect the company's operations.
Unspecified debt: South African law is unclear as to whether a chairperson who is a director has greater fiduciary duties than an ordinary director. Directors are the trustees of the company. This means that employees must act honestly, loyally and in the best interest of the company. Never place yourself in a position where your personal interests conflict with your obligations to the Company. It is also unclear whether the chair owes a higher duty of care, skill and diligence than other directors. Lack of clarity can cause problems with your chair.
Way forward
Company Law and the King IV Report should provide up-to-date guidance tailored to the modern role of company chairmen.
First, a standard appointment process avoids any ambiguity regarding the appointment of the Chair. This ensures consistency and transparency in the process and makes it clear that the chair is a director of the company.
Second, companies would want to require that chairs meet certain minimum qualifications before becoming qualified.
Third, you should set limits on how long the chair can be used while working. Based on my research, I believe that limiting the chairman's term to nine years is ideal.
Fourth, in my opinion, chairs are probably held to a higher standard than ordinary directors. However, it is not clear as South African courts have not ruled on this. This uncertainty leaves chairs uncertain about their jobs. They face the risk of personal liability if they breach their obligations.
Rehana Qasim, Professor of Corporate Law; University of South Africa
This article is republished from The Conversation under a Creative Commons license. Read the original article.
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