Board composition as an aspect of corporate governance principles : the perception of directors of Maltese listed companies

Abstract

Purpose: The purpose of this study is to analyse issues surrounding board composition in MLCs. Board composition is a contentious issue in corporate governance and failure to address it appropriately would hamper the adequacy of Boards of Directors to discharge their duties. Accordingly, the study seeks to throw light on the relation between board composition and sound corporate governance. Design: The methodology used to achieve the objective of this study entailed a series of semi-structured interviews with 12 directors of the MLCs together with an interview with a committee member of the IoD. Findings: This study revealed that the competence of directors is crucial to board composition. It was explicitly shown that MLCs generally seek to ascertain board competence. Additionally, the IoD also plays an important role in educating and enhancing the level of professionalism amongst directors of MLCs. Nevertheless, a number of issues remain unaddressed, particularly the appointment of directors, the selection of whom usually revolves around the same individuals. Still, the latter does not necessarily ascertain good governance. Another issue evident in Malta is the scarcity of independent non-executive directors and whether these so called independent directors are actually free from any business or other relationship due to the 'familiarity issue' pertinent to the local context. Evidently, the directors interviewed acknowledge the need for sound corporate governance for their companies. Additionally, directors, more than ever before, are recognising their powers, functions and duties, including the risk of liability set out in the Companies Act. Ultimately, due to the ever-increasing responsibilities, principally non-executive directors are now more concerned about Conclusions: Adequate board composition in MLCs leads to sound corporate governance. Essentially, appropriate composition of Board of Directors should not be regarded as a luxury but rather as a necessary prerequisite. Value: It is hoped that this study will encourage further development in this area with particular emphasis being given to the recommendations provided to the identified issues in board composition. Fundamentally these would enable MLCs to reap the benefits of an adequate board composition leading to better prospects and superior shareholder value.