The barriers and effectiveness of management monitoring by Maltese listed boards

Abstract

Purpose: The objectives of this study are to establish how Management Monitoring (“MM”) is perceived by the Boards of Directors (“Boards”) of Maltese Listed Companies (“MLCs”) and their management, to ascertain and assess the major barriers to the effectiveness of such monitoring, and to address such barriers to effective MM and recommend how MM may be balanced.

Design/Methodology/Approach: Semi-structured interviews were conducted in twenty-three companies, with participants consisting of eight members of management, three Executive Directors (“EDs”), two independent directors (“IDs”) and nine company secretaries, with one of the latter answering on behalf of two MLCs.

Findings: MM is essential even when management is performing satisfactorily and is best carried out by the whole board, even though it includes monitoring EDs. Yet, the best monitors were considered to be Non-Executive Directors (“NEDs”) and IDs. The highest MM barrier was deemed to be insufficient director expertise. Capping director tenures was not thought to necessarily improve MM. Additionally, whilst CEO participation may help overcome barriers, MM may improve if the CEO is a director. Frequent meetings, an appropriate mix of director skills and possibly formal qualifications could also enhance MM. Managers tend to accept MM if it is not excessive and it is up to companies to find the appropriate MM balance.

Practical Implications: Effective MM is essential for good Corporate Governance (CG). The study puts forward several recommendations for improving MM.

Originality/Value: This study bridges a small state research gap about MM by listed company Boards. It enhances theoretical predictions in governance research by grounding them in realistic perceptions of both directors and executives. This study also sheds light on major barriers to effective MM and produces insights to enhance such effectiveness including those relating to balancing the MM level. It contributes towards encouraging listed companies to reassess their viewpoints on effective MM.