Governing Body and Executive Remuneration: Is there sustainability in this important factor? Part 4

In our last article, we continued the discussion on governing bodies and executive remunerations. We then noted the implications of Principles 14 and 4 and part of their Practices of King IV Report on the Boards and executive remuneration.

The Board steering the management to prepare strategy and giving direction for the organisation were the basis of realising its core purpose and value. As a further basis of monitoring of the execution of the implementation of the strategy, the impact of performance value outcomes and drivers, we identified which of the two factors can be used for performance review and corrective measures.

In this article, we will continue the discussion where we ended in the last edition. In the last article we discussed the aspects of value outcomes which are lag metrics which, consequently, could not be tampered with due to their conclusive stage in the value creation process.

At this stage, the discussion is based on value drivers which are variables, or key performance indicators, which create value (Publications IoDSA, Forum, 2020). In terms of monitoring and control of value creation factors, value drivers are the relevant factors used for the review.

They are the lead metrics that can be adjusted to the prevailing business environmental conditions following a review. The value drivers’ analysis is the process of dissecting value outcomes into their contributing factors or drivers.

Value drivers may include customer service, talent development, succession planning, leadership development, innovation, environmental care, care for communities and social upliftment, cost control and inventory management.

A brief explanation of the foregoing value drivers is the following: good customer service may add value to the business by attracting more customers who may be induced by value added service. On the contrary, poor customer service destroys the business value by chasing the customers and prospective customers away.

Consistent and sustainable talent development adds value to the business in the sense that it creates precocious employment and entrepreneurial cadre to any business which has the effect of reducing costs of the new recruits’ learning curve. This type of cadre also reduces the period of on-the-job induction and training.

Conversely, if any employee joins the business crudely new, firstly, there is going to be high costs of learning curve which has the effect on productivity levels. There is also likely to be machinery, motor vehicles, equipment, and other occupational tools breakdowns due to bare suitable competencies of the new operators.

Supervisory expenses are also likely to escalate because of more hours’ supervisory deployment to the new cadre. Lack of succession planning is a risky factor that affects both ordinary business cadre and members of the boards because the loss of the incumbency can be disruptive to any position.

On the contrary, the existence of succession planning has saved a lot of organisations from disruption of their products and services.

The existence of leadership development goes a long way in mitigating the likely factors of risk that may befall businesses from the general business environment. Lack of leadership can affect the organisation more negatively than several vacancies of operation staff members due to its oversight nature to the entire organisation.

Lack of good leadership can also be disruptive and unsustainable. The existence and sustainable innovation of any organisation protect it from technological vulnerabilities which may cause value destruction. Innovation facilitates optimal systems synchronisation and hence streamlining machinery, equipment, and human capital occupational ergonomics.

Environmental care as a value driver serves to balance issues on climate change and biodiversity as renewable facilities. For example, the optimal use of bushes by an organisation dealing in timber increases the value to the dealer due to the sustainable conservation of trees through further growing, otherwise, cutting of trees without replacing them will be detrimental to the sustainability of the business.

Caring for communities and social upliftment in its multi-dimensionality gives back to its customers and the wider stakeholder community which facilitates a wider spread of value beyond the shareholder. This may manifest in training staff members and some members of the community which may facilitate capital development succession planning including prospective employers of those that are still unemployed.

Cost control (not cost-cutting) adds value to any business from both side of the coin, in the sense that it presupposes no indiscriminate cost cutting which are likely to constrain the optimality of production of products and services.

In other words, there is consideration of optimal stock levels. A good inventory management being much related to cost control adds value in the sense that it maintains optimal stock levels and gets rid of obsolete stocks to promote a sense to what is kept in the stock at any point in time.

In the next article, we will be continuing where we ended in these issues. We are grateful for our readers’ feedback and therefore extend our gratitude to their feedback.