Management monitoring by boards of directors of Maltese listed companies and its effectiveness

Abstract

PURPOSE: The research objectives were to establish how MM is perceived by MLC Boards 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: A mixed-methods research approach was adopted. Semi-structured interviews were conducted in 23 companies, with participants consisting of eight members of management, three EDs, two IDs and nine company secretaries, with one of the latter answering on behalf of two MLCs. FINDINGS: MM was seen as essential even when management performance is satisfactory. It is to include the monitoring of EDs. Overall MM barriers were not deemed high, with the highest being insufficient director expertise. Furthermore, capping director tenures was not perceived as necessarily improving MM effectiveness. Additionally, CEO Board participation may contribute towards overcoming barriers, yet MM may improve if the CEO becomes a director. Frequent meetings, an appropriate mix of director skills and possibly formal qualifications could also enhance MM. Finally, the best monitors were seen to be NEDs/IDs rather than EDs. CONCLUSIONS: MM is best effected by the whole Board including EDs themselves. It prevents managerialism and is to be continuous irrespective of management performance. If not excessive, managers will tend to accept MM. Besides the needed mix of skills and qualifications, directors are to ask the appropriate questions for MM to be effective. Finally, companies are to find their own MM balance, avoiding any excess. IMPLICATIONS: The study implies that effective MM is an essential part of CG. It puts forward several recommendations as to how such MM may be improved.