The implications of a mixed board on the corporate governance of MLEs

Abstract

PURPOSE: This study sets out (i) to ascertain the Board mix of the selected MLEs and how this has changed in the years 2018-2022, if in any way, (ii) to extract the main factors affecting the Board mix, and (iii) to assess the extent to which the Board mix is perceived as contributing to good CG. DESIGN: A mixed methodology was adopted. Thirty-one semi-structured interviews were conducted with eleven directors, nine company secretaries, four CFOs and two CEOs of MLEs, together with three corporate advisors, one corporate lawyer and one MLE expert. FINDINGS: The findings indicate that INEDs are appreciated in the Boards of MLEs but the Board mix varies significantly among MLEs. Minimal changes in the Board mix have been noted in the years 2018-2022. The main factors affecting the Board mix of MLEs are the scope and complexity of the entity’s operations, CEO entrenchment, the directors’ knowledge on the entity’s key functions and the directors’ nationality. The findings also indicate that NEDs/INEDs contribute towards strategy formulation, the prevention and detection of corporate irregularities, and enhanced transparency in financial reporting. Meanwhile, EDs contribute towards strategy execution and may even aid in preventing and detecting corporate irregularities. CONCLUSIONS: The study concludes that no one optimal Board mix may be prescribed for all MLEs due to their own specific needs. However, it is high time to increase the present Code’s recommendation of one-third to be NEDs for these to become the Board majority. IMPLICATIONS: This study aims to raise awareness amongst MLEs on the importance of Board mix, together with the factors which affect such a mix. The proposed recommendations may aid MLEs in composing a Board mix which ensures good CG and enable competent authorities to provide more guidance.