Big company board debate

Berkshire Hathaway chairman Warren Buffett and former Shoprite CEO Whitey Basson said a company board should be business savvy and have shareholder interests at heart.

There is a big debate about company boards’ compositions, with a strong drive for diversity and environmental, social, and corporate governance.

However, it is not clear whether these components add value to the traditional definition of a board’s purpose.

The Institute of Directors says the key purpose of a board is to ensure the company’s prosperity by collectively directing the company’s affairs.

The board should also meet the appropriate interests of its shareholders and relevant stakeholders.

The Corporate Finance Institute says the board is responsible for protecting shareholders’ interests and establishing policies for management.

It provides oversight of the corporation or organisation and makes decisions about important issues a company faces.

Merchant West Investments Value Fund manager Piet Viljoen said the board is there to oversee management on behalf of the business owners and shareholders.

“In turn, it is management’s job to deal with all the moving parts and interested parties that create value for the owners, who are the capital providers,” Viljoen said.

The board will then evaluate the management’s performance and see whether it has done a good job with its resources.

South Africa’s Companies Act and King III expand the responsibilities of the board. It states that the board should act as the focal point for and custodian of corporate governance.

The board should appreciate that strategy, risk, performance, and sustainability are inseparable and that it should provide effective leadership based on an ethical foundation.

These tasks and responsibilities sound great on paper, but it does not say whom you should appoint to a board and how it works in practice.

The Steinhoff board, for example, consisted of the who’s who of South Africa’s business and finance world, but they were oblivious to the company’s serious problems.

It also raised questions about what a correct board structure and composition look like and whether diversity adds value to a board.

Warren Buffett

Berkshire Hathaway chairman and CEO Warren Buffett said he does not consider diversity when hiring leaders or board members.

When selecting board members, Buffett focussed on people who are business savvy, shareholder-oriented, and have a special interest in Berkshire Hathaway.

“We find people like that, and as a result, we have the best board we can have,” Buffett said at the company’s AGM.

He said other companies have different priorities, like having a well-known person on the board who will bring credibility to the company.

Buffett gave the example of the Theranos board, which included big names like Henry Kissinger, Jim Mattis, George Shultz, and Richard Kovacevich.

However, like the Steinhoff board, they did not know the company was a fraud, and shareholders lost large amounts of money.

“We are not interested in people who want to be on the board to make money or want prestige,” Buffett said.

“We want our board members to walk in the shoes of our shareholders. They must care about the business and be smart enough to know what they should get involved in.”

Whitey Basson

Former Shoprite CEO Whitey Basson also slated the drive for board diversity, questioning the ideology’s value to shareholders.

“With modern boards, you must have many accounts – one white, one black, one Indian, one female, one male, and whatever else,” he said.

“However, they don’t need to have retail experience. The structure of such a board is wrong for retail companies.”

Basson revealed that he wanted to retire two years before he did because of red tape and struggling to get done, partly because of issues with the board.

Another challenge was a potential deal with Steinhoff where the disgraced CEO, Markus Jooste, would have been on the board with the power to interfere with Shoprite’s operations.

Basson said he could not operate in such an environment, but the deal was ultimately scuppered.