Financial institutions

Importance of Board Assessments in Tanzanian Financial Institutions

By Peninah Musya

Corporate governance is about the regulations, practices, and systems that guide organizations. Its essence is to ensure that companies find a balance between the interests of the community and those of the stakeholders in the execution of their mandate.

Board evaluations, on the other hand, are a governance function through which boards check whether members are progressing toward achieving goals, meeting expectations, complying with the law, among other factors. The role of the banking sector in the economic growth of a country cannot be underestimated.

Over time, corporate governance has become one of the most crucial elements of the banking sector and the financial industry in general.

The banking industry in Tanzania has witnessed a lot of development and growth since its inception with digital banking being one of the most prominent areas that has transformed banking operations. With this transformation, board assessments are set to play a crucial role in steering the industry in the right direction.

Tanzanian financial institutions can benefit positively from board assessments if properly executed. To begin with, stakeholders need to analyze assets and liabilities.

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Examining these factors will help establish the institution’s position and weigh the potential risks that lie ahead. Additionally, it can also inform decisions such as increasing deposits to increase access to capital. It is a proactive measure to ensure that the institution protects itself against a liquidity crisis or to prevent the likelihood of such an occurrence.

To conduct board assessments that add value, financial sector boards must be properly constituted and board members appointed on merit. This means that boards should have a composition that brings together different people with their unique skills, experience and backgrounds and diverse backgrounds in the financial services industry. This context is essential to guide institutions in making critical decisions and achieving institutional goals.

In addition, a more diverse board will help guide executives in driving the institution’s strategy and provide adequate controls to minimize mistakes that could negatively impact financial institutions.

Financial institutions in Tanzania stand to benefit from periodic board assessments as these could help in equipping the institutions with an adequate cadre of professionals and, therefore, in building their institutional human capital.

For example, if board assessments reveal skills gaps that could impact the achievement of business goals, the organization’s leaders will be able to take immediate action to improve their skills and fill these gaps. Additionally, board involvement in executive appointments will ensure that the institution appoints the most suitable candidates and clearly articulates their duties, expectations and performance goals.

After appointment, board assessments should be conducted regularly to reveal strengths and weaknesses of the executive and team, thereby identifying gaps that need improvement. Individuals and teams aware of their abilities can collaborate and find solutions to the challenges that concern them and, in the long term, improve their performance at work.

Additionally, a robust framework that allows for regular board reviews ensures that management and the board have an appropriate succession plan to address any potential leadership transitions.

Board evaluations are also crucial in managing conflict in organizations. The policies governing board assessments require independent handling of all disputes. Thus, embracing corporate governance through board assessments of Tanzanian financial institutions allows for procedural conflict management and prompt resolution.

In conclusion, the concepts of corporate governance and board assessment are intertwined and work together to improve systems. Tanzanian financial service providers need to integrate these concepts into their operations to reap the many benefits. For example, corporate governance practices describe the regulations and acceptable practices that ensure the proper functioning of financial institutions.

Therefore, professionals are aware of what is expected of them and come up with methods to improve performance. On the other hand, board evaluations help to have board members whose values ​​and work ethics are aligned with the goals of the organization.

More importantly, the board evaluation process is guided by corporate governance rules. Therefore, stakeholders in Tanzanian financial institutions need to accept and sensitize relevant stakeholders on the need for improved corporate governance and board assessments.