Sixty per cent of the loss of shareholder value of companies can be attributed to bad strategic thinking and policies rather than poor compliance, said Phillip Marshall, executive director of Human Resources and Information Technology at the ANSA McAL Group of Companies. Seventeen per cent of that loss was also attributed to operational issues, he said.
Marshall was speaking about the Role of the Board of Directors in Managing Strategic Risk at the Arthur Lok Jack Graduate School of Business last Friday. He said that because of this, the role of the board of directors—and especially that of the non-executive director—would take on greater significance.
Traditionally, he said, directors were and are concerned more with the company’s conformance.
Philip Marshall – ANSA McAL Executive Director, HR & IT
“That is, that the companies comply with legislation, looking after the reputational risk of the business and ensuring that all regulatory responsibilities are fulfilled by the company,” said Marshall.
“That role has been the main emphasis.”
He said there was natural tension between non-executive directors who needed to ensure the long-term protection of shareholder value and long-term survival of the company as opposed to executive management who are being driven to deliver continual operational and financial performance to meet shareholder expectations.
He said the non-executive director had a responsibility to help managers develop the competencies within the organisations to manage and mitigate the operational risks which come with growth opportunities.
“The non-executive directors now have a very important role in understanding what are the industry’s critical success standards, what are the drivers of earnings growth, what are the drivers to enhance the market capitalisation, and take a long-term view of what are the risk events that could impair a company’s drivers of financial profitability and growth, and ensure that the company internally develops the capabilities and management actions to mitigate the risks.
“Wherever there are risks there is profitability, because profitability and opportunity come out of risks.”
Marshall said that to fulfil his role, the non-executive director must be provided with all the necessary information in sufficient time so that there can be informed decision making.
Also addressing the seminar was Dr Vijag Jog, a Canadian academic, who examined the lessons that can be learnt from recent corporate scandals around the world, which resulted in loss of wealth for shareholders, loss of jobs and—a new one—jail terms and indictments to key parties.