Executives facing up to challenges ahead

PUBLISHED : Tuesday, 07 December, 2010, 12:00am
UPDATED : Tuesday, 07 December, 2010, 12:00am

In an increasingly globalised environment, where geographical borders blur and the flow of liquidity knows no boundaries, the role of directors is becoming more challenging as executives find themselves having to deal with a raft of issues that span the company's financial performance.

'There is no formula regarding what constitutes a good or best director. In the ever-changing and demanding role, directors need to understand the impact of globalisation and the ramifications on best practises and corporate governance,' explains Dr Kelvin Wong, chairman of the Hong Kong Institute of Directors (HKIOD).

'With the world changing so rapidly, it is important to keep up-to-date on issues and developments. Someone doing a good job today does not mean they will be doing a good job next year,' adds Dr Carlye Tsui Wai-ling, the HKIOD's CEO.

Globalisation has redrawn the scope for corporate directors, requiring them to draw on a wide set of tools to do their jobs properly. Unlike their peers three decades ago, directors today can no longer focus only on the company's financial performance, management process and the allocation of resources.

They have to take care of a plethora of issues affecting a company, as in today's world they are constantly kept under the scanner by the shareholders.

'With a growing number of local, regional and global stakeholders, each holding the company up to a different set of requirements, directors need to be well versed not only in what is happening at the industry level, but at the regulatory and corporate governance levels and across various jurisdictions too,' Wong says.

The global financial crisis, coupled with major fraud and corporate and accounting scandals over the past decade, has further tightened corporate regulations, raised the bar on corporate governance and triggered a closer review of the performance of board members.

In the United States and Britain, where evaluation of the board as a collective entity is common practise among listed companies in annual reports, companies are able to clearly identify scope for improvement and strengthen transparency.

'It isn't a finger-pointing exercise, but gives directors and the board as a whole the opportunity to stop and think about what they are doing and assess whether they are on the right track,' Tsui says.

'A self appraisal system for the board constitutes the missing link between setting strategy, operation targets and financial results. It is important for Hong Kong to catch up,' Wong adds, noting an appraisal system would not only help members of boards do better, but will also justify remuneration packages and benefits.

The institute will focus on promoting the importance of formal and rigorous annual evaluation of board members next year, encouraging companies in Hong Kong to embrace self-evaluation as a way of improving the professionalism of directors.

'This would be a new thing for Hong Kong companies. Currently, only corporations with dual listings, and in jurisdictions that have this requirement, undertake the task of appraising the board,' Wong explains.

But beyond keeping up with the changing times amid an ever-shrinking world, and implementing mechanisms to optimise the performance of board members, the fundamentals of what makes a good director have not changed.

'We structure our continuing professional development programmes around five core competencies which we believe all directors must master,' Tsui says.

These include skills in corporate business functions, awareness of the power, responsibility and liability of the board and as an individual director, an understanding of board development and boardroom practise, individual attributes and qualities and business ethics.

Basic soft skills, such as communication, listening and teamwork, are equally important, contributing towards the essentials of what makes a well-rounded and effective director.

'Acting in good faith and with integrity is not sufficient. Directors need to be open-minded in order to listen to different perspectives and meet changes in the market. They should also have the ability to criticise and be criticised. It could be the difference between being a facilitator or a stumbling block,' Wong explains.

Directors of listed companies tend to be more open-minded than those at private companies due to the need to deal with a broader group of stakeholders and financial investors, in addition to complying with a wider range of regulations across multiple jurisdictions, according to Wong.

'Boards must try to avoid the one view, one voice, one vote scenario. The important thing is for board members to have debate on issues, and not on the personalities of each board member,' Wong adds.