We all have seen the success and failures of multinational companies, big corporations, and businesses. We judge their every move, anticipate the reasons behind every decision and predict the consequences.
We also tend to associate business decisions with the CEO, whether a product launch or a significant acquisition. The market and media comment on how the CEO is leading the company and whether the company is gaining valuation traction
However, not only the CEO is responsible for the company’s success or downfall. A group of board members sits behind the CEO, who provides stewardship and monitors the company.
The board is responsible for taking action on significant policies of the company. It is the board that decides whether to merge with another company or not. Moreover, the board monitors and approves strategic planning, compliance, and reporting. Further, the board is responsible for overseeing the performance and productivity of the CEO. The board is also involved with approving and appointing new executive officers.
The board has a voice in providing direction, risk management, and company strategies. Board members must act with integrity within their businesses and the company. The board is tasked with stewardship and must steer the company away from illegal activities or non-compliance with regulatory guidelines.
To sum up, the board is the foundation pillar of a company, and board governance holds tremendous significance.
What Is Board Governance?
Board governance refers to systems and processes that govern the behavior of the board directors. It is a set of guidelines or policies that dictate how the board will function for the betterment of the organization. The board governance system outlines the board of directors’ responsibilities towards the company and its employees.
Board governance is the structure or decision-making process that monitors the company’s planning, performance, operations, compliance, integrity, and governance.
What are the Key Responsibilities of the Board Members?
The primary board responsibilities are:
- Hire a chief executive officer
- Support CEO in the company matters
- Monitor his performance
- Plan the strategic future direction of the company as per the market scenario
- Ensure effective and profitable company planning
- Risk management
- Assure the availability of the resources
- Monitor the performance of the company’s products and services
- Build and maintain an excellent public image and reputation
- Ensure legal and regulatory compliance, ethical behavior, and accountability
- Evaluate the board’s governance practices
- Identify and eliminate any discrepancy within the board
Types Of Board Structures
The most common board structure types are as follows:
Governing Board
It is responsible for analyzing the shareholders’ best interests and acting accordingly. Moreover, it also offers insights into shareholder sentiment and what actions should be considered. Overall, it oversees the company’s strategic planning and direction.
Managing Board
The managing board is also knowns as the executive board. It handles issues that may arise between regular board meetings and may even oversee the day-to-day operations of the company if required. Moreover, it helps executive officers in decision-making, and other crucial company matters.
Working Board
Working Board includes members of the board of directors and the company’s employees. Collectively the working board members overlook the governance, product planning, compliance, and performance.
Advisory Board
The advisory board comprises outside experts advising the executives and other board members on industry trends and, possibly in some cases, important company decisions.
Cortex board
It focuses on the company’s image, values, and relationship with its community and shareholders.
Policy Board
The Policy Board creates the company’s policies, rules, and regulations, which are to be followed by the board members, employees, delegates, and CEO.
Why Do We Need a Board?
The board’s role varies depending on the company’s structure and nature. However, no matter the company model, the board manages the company, its resources, and its shareholders.
Here are a few reasons sound functioning boards add value.
Ensure the success of the organization
Boards play a crucial role in pushing the company toward success. It dictates the company’s planning by balancing the market sentiment, profits, and shareholder interests.
Establish a long-term company vision
The board is primarily involved in planning and narrating the long-term purpose and vision of the company. They make strategies, investments, and products that contribute to that vision. Instead of managing everyday operations, the board focuses on achieving long-term goals.
Appointing CEO
Board appoints a capable leader as the CEO to run the company. They also select other executive-level or C-suite members to assist in running the company.
They also monitor the CEO’s performance and are engaged in hiring and perhaps firing.
Board members should always be aware of what is happening in the company. However, they should restrict themselves from directly meddling in everyday matters.
Assisting in Decision Making & Risk Management
Companies fail due to the indecisiveness of the top level. The disagreement can lead to significant failures and losses if the company’s CEO and board members have different visions.
That is why it’s crucial that board members and CEOs collectively decide on issues after weighing their pros and cons. The board sometimes makes decisions or helps the CEO make decisions. It should be done unbiasedly and keep the company’s best interest as a primary goal.
Enhancing Management Perspectives
While less tangible compared to their other roles, boards often contribute to improving organizational management by offering fresh insights and external perspectives to the executive leadership. Nabila Salem, Group President of Revolent, a global cloud talent creation firm, emphasizes this point by stating:
“Back in the day, boards were primarily filled with people with regulatory expertise and experience with cross-industry pattern recognition— especially with regards to compliance. But in the past ten years or so, this has changed. Today, board governance steers towards valuing deep industry expertise and technical knowledge. Beyond this, modern boards are also highly interested in understanding how strategic, operational, and technological knowledge from other industries can be imported into their business, with the aim of improving it.”
Best Practices To Follow In Board Governance
Recruiting Board Members Effectively and Honestly
- Develop a recruitment packet that provides consistent information about your organization.
- Utilize board job descriptions to clearly define expectations for board members in terms of time, talent, and contributions.
- Establish a nominating committee that focuses on recruiting individuals with the necessary skills for effective board operation rather than relying on the status quo.
- Ensure transparency and prevent conflicts of interest during the recruitment process.
Training and Orientation of Board Members
- Conduct a thorough orientation program to familiarize board members with their roles and responsibilities.
- Cover essential aspects such as the organization’s history, key accomplishments, legal and fiduciary obligations, financial statements, strategic plans, and organizational policies.
- Provide comprehensive training to equip board members with the necessary knowledge to fulfill their duties.
Optimizing Board Members’ Time, Talent, and Contributions
- Organize focused board meetings with a clear agenda aligned with the annual plan of work. Aim for meetings that can be efficiently conducted within 1-2 hours.
- Establish committees responsible for specific tasks outlined in the annual work plan, holding them accountable with written reports. Discuss committee matters at board meetings only if necessary for board action or discussion.
- Apply Robert’s Rules of Order judiciously to facilitate smooth board proceedings.
- Maintain accurate minutes that accurately reflect decisions made during board meetings.
Allowing Board Members to Resign When Ready
- Implement annual commitment letters that allow board members to reassess their ability to serve and reaffirm their commitment to making an annual financial contribution.
- Include an “escape clause” enabling the board chair to accept resignations from those who do not sign the annual commitment letter.
Conducting Annual Board Performance Evaluations
- Evaluate the board’s performance during the annual planning session, identifying areas for improvement and developing strategies to enhance governance.
- Utilize assessment templates or create customized evaluations.
- Review the IRS Form 990 to align with board governance expectations.
- Assess various aspects, including governance and oversight, fiscal and financial policies, budgeting and finance, strategic planning, personnel policies, and management and administration.
Clarifying Roles and Responsibilities of the Board and Executive
- Encourage open and honest communication regarding expectations between board members and staff.
- Establish clear HR policies and procedures.
- Distinguish between governance and operational management roles.
- Prevent micromanagement of staff.
Recognizing and Rewarding Excellence and Showing Appreciation to Board Members
- Regularly acknowledge and appreciate the contributions of board members.
- Ensure compliance and effectiveness of the board of directors in meeting fiduciary and governance requirements.
- Utilize available tools and resources to improve board governance, such as sample documents, including board job descriptions, commitment letters, conflict of interest statements, and board membership applications.
- Consider using a comprehensive organizational assessment tool like Exploration™-Management by Assessment for evaluating and enhancing governance practices.
How Can Technology Help In Board Governance?
Technology can play a significant role in enhancing board governance practices. Here are some ways in which technology can help:
Communication and Collaboration: Board members often need to communicate and collaborate outside board meetings. Technology tools such as email, messaging apps, and virtual meeting platforms enable seamless communication and allow board members to share information, discuss important topics, and make decisions efficiently.
Document Management: Technology provides digital solutions for document management, making it easier for board members to access, review, and collaborate on board materials. Cloud-based storage platforms and document-sharing tools ensure secure and centralized access to board documents, reducing the reliance on physical paperwork.
Board Portals: Board portals are software platforms designed specifically for board communication and collaboration. They offer features like secure document storage, meeting scheduling, voting capabilities, and real-time collaboration tools. Board portals provide a centralized hub for board-related activities, ensuring easy access to information and streamlining board processes.
Data Analytics and Reporting: Technology can help boards gather and analyze data relevant to their decision-making processes. Board management software can generate reports and dashboards that provide valuable insights into key performance indicators, financial metrics, and organizational trends. Data-driven decision-making facilitates more informed discussions and enhances the board’s ability to fulfill its oversight responsibilities.
Board Evaluations and Assessments: Technology tools can automate and streamline the process of conducting board evaluations and assessments. Online surveys and assessment platforms allow board members to provide feedback and assess their performance, as well as the board’s overall effectiveness. Technology simplifies data collection, analysis, and reporting, enabling boards to identify areas for improvement and develop action plans.
Security and Compliance: Technology solutions incorporate robust security measures to protect sensitive board information from unauthorized access. Encryption, access controls, and secure data storage mitigate the risk of data breaches. Furthermore, technology can assist boards in complying with legal and regulatory requirements by providing features like e-signatures, audit trails, and data retention policies.
Training and Education: Online platforms and e-learning tools offer board members convenient access to training and educational resources. Webinars, online courses, and virtual conferences provide opportunities for continuous learning, keeping board members informed about best practices, governance trends, and industry developments.
It is important to note that while technology can significantly support board governance, it should be implemented thoughtfully, ensuring that the chosen solutions align with the specific needs and dynamics of the board and organization.
A Final Thought
Boards are collectively responsible for their organization, employees, and stakeholders.
It is crucial for the board to
- have seamless communication and relation with the executive officers
- take decisions for the betterment of the company
- consider the interest of shareholders
- plan the company vision, mission, and direction
- maintain the company’s public image
- ensure regulatory compliance
- be unbiased while appointing C-suite members or making any decision for the company
- monitor the overall company governance and management
Board’s responsibilities include assisting in company growth safely and soundly and increasing franchise value. Board members are expected to fulfill their responsibility ethically and with dedication.