The link between board composition and financial performance

November 06, 2019

We have been hearing buzz words like board diversity and of course directors duties, but what is the true link between the board and ultimately the shareholders? Well, its all about performance. All about steering the ship in the right direction. The ability to steer is all about who you have at the wheel as well as how the team operates.

According to Parmi Natesan, CEO, Institute of Directors in Southern Africa:

“Research shows what most shareholders probably instinctively know: that the experience, expertise and ethics of board members directly affect the quality of their investment in the company.”

“The MTN case provides an example of how board changes can impact the market. Shareholders should bear this in mind, and ensure that boards not only have the right skills, but also that well-thought-out succession and rotation plans are in place.”

One research paper into the correlation between board composition and financial performance of listed companies concludes that “board structure does play an important role in influencing firm performance. There is practices a need to monitor and practice the different elements of a corporate board to ensure good corporate governance practices are upheld.

“The conclusion is inescapable: boards play a critical role in a company’s ability to achieve its goals and produce value for shareholders, and there is a link between board composition and financial performance…”

Let us remind ourselves when choosing managers and partners.

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