Written by Joseph F.X. Zahra, 7 May 2014
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There is more than ample evidence that boards of directors in Malta are steadily, although quietly, changing. A number of factors have contributed to this. The opening up of the economy in the nineties, increased competition, greater awareness on corporate governance (thanks to the MFSA!), the maturity (and challenges) of second generation family businesses, are a few of these factors. The regulatory-imposed board of directors-cum-AGM meeting at the end of the year has been transformed into a veritable and dynamic board meeting with improved discussion and serious decision making. We are going through the years of the Great Reformation in our boards.
Here are a few signs of the change.
We are having more diversified boards with more independent non-executive directors. We have more boards that are presided by non-executive chairmen. The role of independent directors, mostly professionals with long years of senior management or governance experience, has enriched the interaction and discussion at board meetings.
We are seeing a clearer demarcation line between director and executive roles and functions. The role and responsibility of the Chief Executive Officer is becoming more distinct from policy making and high level decision making, and the Chief Executive Officer is being invited to board meetings to report back on decisions’ implementation. Boards are protecting their independence by having strong non-executive directors and non-executive chairmen.
The positions of the Chief Executive Officer and the Chief Financial Officer are being scrutinized by the Board of Directors. The selection and performance of these two key positions are discussed, evaluated and decided upon by the boards.
Board of directors are instituting Audit Committees (even if not imposed by regulation) to have an independent deep-dive in the financial performance of the company separately from other discussions.
Directors are getting actively involved in business strategy together with the top management of the company. The annual top executive retreat with board directors present gives an opportunity for both sides to understand each other, besides building synergies that ensure more effective decision making and execution.
The above factors provide a useful and practical check-list for family and other business on corporate governance. Does your board of directors already form part of the Great Reformation?