My view is that busy organisations want to bring on board busy people to join their rank as directors, but these individuals are just too busy to want to be engaged in another busy organization. The result is that individuals who are fully deserving to be directors are not easily available. They are already engaged in activities that pay them so much per day such that pulling them off their business even for half a day for board business is a huge opportunity cost. In other words, there are individuals who will carefully weigh-in an invitation to be director of a board.
Though I have not carried out an actual survey on why many people want to serve on boards in Zambia (and there are many who lobby to be appointed), I have some perceptive knowledge that three things drive this desire. Starting with what I consider to be the last motivating factor among the three, it is the desire to serve. There are individuals who have earned sufficient experience and will love to make a contribution to the current and future generations.
When you have made money and now in retirement, you begin to be concerned about legacy. This comes in many ways, such as ensuring organizations are strong enough to provide for needs of the future. In a PriceWaterHouse publication on Leadership in State Owned enterprises, I read the following, ‘Strong leadership sets out to create a legacy for the long term, ensuring that future generations of employees, and leaders, can draw on a reservoir of knowledge and assets and build on a sound foundation of organizational integrity, accountability and commitment.’
There is also the general assertation, which I passionately emphasise during board inductions, that directors act as trustees for an entire generation of people, ‘Public trust is the obligation placed on Directors to maintain, preserve and further develop and expend resources and to ensure that the organization’s activities remain in the public domain to benefit this and further generations.’
This is what motivates certain individuals to serve as directors in organizations, particularly public establishments. I read an interesting piece on the internet some 13 years ago that revealed that there are not many busy people who are willing to sit on public boards,’ “A major problem faced by boards today is that they are charged with doing the work of government without the stable funding of government. Often the people who have the best skills have no time to volunteer. Also, many people who are active in various parts of the community find themselves in conflict of interest situations.’’ We, should, therefore, applaud those individuals who offer their time and expertise to serve on such boards.
The second reason individuals seek to sit on boards is for purposes of leveraging. Being a director can be a springboard for wider opportunities. First, you enrich your CV. Second, board directorship gives you the kind of networks and connections that can help you fulfil personal interest. Third, sitting on a board can lead to another Board appointment based on consideration for experience. I remember telling one organisation two months ago I would not accept the nomination of appointment as a board member because I was already sitting on too many boards (a topic for another day). This disclosure prompted additional interest to have me on their board. It signalled to them if I was that much on demand, there was some intrinsic value that others had seen about my potential effectiveness as a director.
The main reason many people want to be on boards in Zambia is financial empowerment. There is this belief that board appointments can be the best way of making money while seated on a round table glancing at board papers, seconding minutes (you did not read), munching biscuits, and getting paid for it.
The truth is that there are boards that pay quite well. We did some survey a couple of years ago and established that some commercial banks have retainer fees in the north of K60,000 per quarter, which translates to K240,000 per annum. If converted as a monthly income, it comes to K20,000. This is the gross salary of a university lecturer and very few civil servants come closer to this figure. When you look at this, some directors will not want to leave the board when the term expires, its quite healthy money. That is of course for some commercial banks and other high rewarding companies which even remunerate much more than this.
The average remuneration in public boards is K3,500 per quarter. This figure is comparatively quite low but only for those with a high opportunity cost. If I lose half a day reading board papers and lose another half day attending a board meeting, it can be very costly if my business generates three times this much for this period. I do remember having a difficult decision about attending a board meeting with a sitting allowance of K2500 when I had another engagement for the same period of time where I was going to be paid ten times more. If the financial motive had prompted my board appointment, it was cheaper sending an apology for the board meeting than lose that much money.
There are many Zambians who desire to sit on boards because they view the opportunity as the means for survival. Unfortunately, the moment such individuals realise that they are paying a financial price for spending so much time to earn so little, they seek ways of enhancing their compensation. For public entities, they will seek to engineer project tours to earn something from subsistence allowances.
We also had another interesting case in Zambia a few years ago when the Auditor General revealed that one Board had 21 board meetings in one single calendar year. This usually happens when a comma is missing in the management report and someone will bring forward a motion, ‘Chair, management has done a mediocre job. We assigned them to report financial figures with three columns indicating the trend over three years but now they decided to incorporate only two years. We do not accept this. We give management two days to respond adequately to our demand and we meet again next week.’
This is the price we pay for appointing to the board individuals whose objective is not to contribute to the organisation but to eat from it. In deciding on remuneration of directors, it is important to consider critical factors: What is the organisation’s financial performance: long-term versus short-term? Is the board helping towards the achievement of strategic and operational goals? What is the scope of responsibilities of the director? What are the personal skills, other characteristics of the director? What are the typical levels of remuneration in the organisation and the industry? What are the associated individual and institutional hazards or risks of the role? What is acceptable (culturally) in Zambia?
My sincere view is that a board will never sufficiently compensate a competent director for the contribution they make. This is because board directorship is not for that four hours meeting. It is about the time you spend before the board meeting and the actual contribution you make to the organisation.
Directors give the organisation the strategic focus it needs (topic I will discuss soon). The board is involved in the contingent planning of the organisation so that the set objectives are met through the oversight role. Directors provide a system for the setting of priorities when there are competing demands on limited resources.
By doing this, directors would have saved significant resources for the organisation. There is no board compensation that is ever adequate for this kind of intellectual, moral and technical contribution to the organisation. There was even a time I asked myself, ‘Why should I sit on another company’s board, provide exceptional ideas for the transformation of the organisation when I am supposed to be with my own business?’ When you frankly address this question, you will realise that board appointments can be a huge opportunity cost unless your motive is to simply make a contribution for the benefit of future generations.
(Chibamba Kanyama is a Fellow of the Institute of Directors- Zambia and Trainer of Trainers on Corporate Governance.)