Over the last two decades, I have sat on various boards. Good boards. Bad boards. And a few, downright ugly boards. The ugly boards have stories for days.
On one such board, the meeting agenda was to approve a bonus for the entire staff complement, following what management perceived had been a superb performance in the concluding financial year.
A robust debate was undertaken by the board, the key issue being whether this performance would pass muster with the key shareholder.
Out of the blue one director proposed that the board should also be included in the bonus calculations.
I threw up a little in the back of my throat, perched on my high horse of righteous indignation at the sheer gall of this director.
Then I slithered to the ground and quietly sat back to see how the discussion would unfold. Perhaps my years of board experience had not exposed me to other ways of getting rewarded for hours of board paper reading and more hours of board and committee meetings.
Perhaps this was the way things were done in institutions like this one, and who was I to judge? Another director volubly provided support to the brave bonus warrior by saying that it was a question of the organisation’s budget: if there were enough funds to include the directors’ bonus as well, then there was scope for inclusion in the bonus agenda.
By this time, the CEO was squirming in his seat overworking his gluteus maximus muscles. It didn’t take a genius to see the razor-sharp knife edge that he was now skating on.
The inclusion of the directors’ bonus to piggyback off the staff bonus agenda discussion was putting him in a bind. Should he say: “Alright, I will withdraw the paper and resubmit it with the new request as directed by the board.”
Or he could go the kamikaze route and say: “Listen here, I have never heard such bull crap in my life and you all need to stop smoking that herb you are all on!”
Board remuneration is a difficult topic for any organisation. Board members provide the governance context that gives shareholders or donors, employees, bankers, suppliers and a whole stakeholder universe the assurance that someone is holding the organisation’s management to account.
The board is viewed as an accountability entity that holds the management’s feet to the fire whenever something manifestly goes wrong and stands on treetops to look in the far distance as they help management validate the organisation’s strategic intentions.
Mercifully for management, the board does not sit in the boardroom five days a week. They come in more often than not every quarter for a series of board committees and full board meetings.
In the event of crises or major recruitment exercises like for a CEO, the number of meetings might escalate, but never to the point of daily intervention for a sustained period.
As directors have a fiduciary duty to the organisation for which they are liable in the event of that breach, directors are entitled to remuneration not only for taking on that responsibility but also for the time served and expertise provided on the board.
At no point are board members expected to execute the day-to-day operations. Oversight, insight and foresight. Those are the three overarching principles for board engagement.
I daresay that any discussions around performance-related remuneration should be the sole preserve of those who come daily to the organisation to produce goods or provide services to the organisation’s customers or recipients of that service.
Simply stated: performance remuneration should be given to those who perform and execute rather than to board members who oversee that performance and ensure that it is done in a responsible, sustainable, risk-managed and legally compliant manner.
Unfortunately, not everyone sees it that way. There are board directors who conflate their oversight role with the successful performance of the organisation and the resulting financial reward.
This is a fallacious rationale at best.
Fortunately for the squirming CEO, the board chairman took control of the discussion before it could gain unethical traction.
He focused the discussion on the agenda item before the board, requesting the directors to address management’s request conclusively as it was time bound. Board performance remuneration, the chairman said, could be an issue to be discussed at the next board meeting. It never was. The spell was broken and the CEO lived to squirm another day.
