Those who sit on boards need to stay vigilant and act fast to prevent corporate blowouts, according to a risk management expert, as if left to their own devices, people have a tendency to mess up.
“People are neither bad nor incompetent, but they will get things wrong,” Dr David Bobker, Asian Institute of Finance’s deputy director of the risk management centre, told delegates at the Corporate Governance Summit.
“The only time boards swing into action is after the disaster. It’s too late by then.”
Bobker, who said he had studied a “litany of corporate disasters”, believes that the board is the “centre of everything”.
And when a company is in a bind, resigning should not be an easy way out for directors, said Datuk Wira Jalilah Baba, who sits on the board of QL Resources Bhd and various firms.
The former top civil servant and director-general and chief executive officer of theMalaysian Investment Development Authority said directors had a duty to stay and make things right, or risk being seen as dodging their responsibility.
“Watch out for early signs (of trouble). If you are the lone voice, then make sure it (your opposition) is recorded in the minutes of the meeting.
“As an active board member, be vigilant. Insist that the agenda and committee papers come early so you can scrutinise them and form a view,” she said.
“They can sometimes arrive the night before. I stay up and read them before the meeting.
“And don’t join a board where you have no expertise. It’s not just about the money. Money can also bring you down,” Jalilah added.
Bobker, meanwhile, warned directors not to let the company sink into trouble before taking action.
“By the time you’re in trouble, you’d have failed in your duty. The time to do things is now, when you’re not in trouble, assuming you’re not.
“Many directors complain that they don’t have access to information, but whose fault is that? You need to ask the right questions.
“The time to fix it (problems) is before the wheel comes off.”
He also thinks board members need to acquire hard skills such as technical and financial knowledge to properly carry out their role as a check-and-balance mechanism.
“The most notorious case is of course the Lehman Brothers’ board, which was totally incompetent by all accounts.
“They knew nothing about investment banking, and had a CEO who had been a dominant personality there for many years and who did what he wanted.
Tumbling profits, diversification into non-core businesses, and the departure of talent were all red flags in an organisation, Jalilah said.
“If these things happen, probe. Don’t be a yes man – state your objections.”
Source: The Star Online