What is the role of the board in today's governance world?
In this blog, we explore the roles of the Board and what it entails.
Tasks of the board
It can be agreed that every organisation is unique – different sizes, different finances, different structures. With all this taken into consideration, every director naturally has different backgrounds, experiences and sets of responsibilities. In general, though, below are the tasks of a Board:
- Establishing the organisation’s mission, vision and core values
- Hiring, monitoring and evaluating the chief executives and other members
- Provide financial oversight
- Create strategies and make sure it is followed
- Ensure DEI principles have been implemented
- Manage resources
- Enhance the organisation’s public standing
- Strengthen the organisation's programs and services
By having a solid set of responsibilities, Boards are able to monitor and assess their performance. Each Board should be able to decide upon its needs so as to achieve its goals. It should be able to identify any internal or external risks and tackle them accordingly. Boards should also distinguish between tasks that they have sole responsibility over and tasks that are devoted to senior managers. This way, processes become further simplified and more straightforward.
Challenges of the Board
Alongside the tasks and responsibilities of the Board, there are challenges that need to be faced and overcome. Firstly, the opportunities and threats are present both within the establishment as well as in the external market.
Secondly, the Board must carefully assess talent. They must keep in mind that the directors should be of an inclusive nature, covering a vast skill set. In this way, the most holistic form of strategy may be achieved. With rapid changes in various aspects of the market, from artificial intelligence to the nature of commerce, Boards need to have the acquired talent to spot these changes, to anticipate and evolve appropriately.
Finally, Board members need to know how to process information. With the rapidly expanding use of the internet and information in the public domain, information needs to be carefully selected and analysed. Boards should recognise what is relevant and valuable to the organisation’s benefit.
Other challenges are that Boards must both be entrepreneurial, as well as steer the organisation forward, and at the same time, keep it under absolute prudential control. The Board must be knowledgeable enough about the inner workings of the organisation in order to be accountable for the strategic decisions being made. There is also an element of time pressure that Boards must consider. They should be able to discern between short-term issues as well as long-term goals. They must also be able to focus on the commercial needs of the business, all the whilst taking care of all stakeholders.
An effective Board
An effective Board has the right people – a true mix of diversity and talent, with a suitable skill set and industry knowledge. They must also have the right behavioural qualities and a robust value system. An effective Board should be made up of directors who have a wide range of experience and are able to lead management effectively, all the whilst inspiring confidence in those around them. In order to establish a well-rounded, effective Board, a skill matrix can be extremely useful, whereby industry knowledge is placed against the skill of directors to see where gaps may form.
Similar to the point above, an effective Board must be comprised of a diversity of directors. This means different ages, genders, religions, races, and cultures. Making sure that there is no sort of discrimination between Board directors makes for a more confident and accepting organisation as a whole. Whilst it yields different perspectives, it also makes the Board less prone to “groupthink”, a phenomenon whereby a group consensus overrides logical thinking. A diverse Board means that there is a wider range of competencies and cultivates a better identification of risks and opportunities.
Although an effective Board contains strong leaders, great leadership attributes must stem from the Chair. The role of the Chairperson is to facilitate meetings, making sure that everyone in the meeting has a say. They must also facilitate and manage critical relationships.
How effective a Board is also determined by healthy Board practices. This means regular attendance, introductions and inclusivity of directors, measuring Board attendance and managing meetings.
Non-executive director vs executive director
In a legal context, there are no differences between executive and non-executive directors. However, an executive director (like a CEO, MD, or CFO) is a full-time employee involved in the routine management of the organisation. In contrast, a non-executive director (like the Chairperson) is a member of the company’s Board but doesn't possess any management responsibilities.
Whilst the executive director would need to have an intimate knowledge of the company and the market in order to handle management. The non-executive director would be required to have a broader perspective of the market in order to lead the Board and create a viable strategy. This is why it is essential not to make the CEO Chair of the company, as it could create a lack of perspective for the Board.
Tasks of the Board and indicators of good practice
1. Establishing mission, vision and values
This is the essential foundation of the organisation. It starts from the top of management and trickles down - management leading by example to the rest of the staff. Determining the company’s mission, vision and core values sets the pace for current operations and future development. Once these are in place, the company needs to continuously review their goals and determine company policies that match.
2. Setting strategy and structure
One of the main goals of a Board is to objectively determine the company strategy. They must review and evaluate opportunities and calculate risks, both in the establishment and outside of the market, in order to make the best decision for the company. Whilst determining a plan of action, it is inevitable that many strategies would be presented as possibilities. The Board must select the most relevant strategy according to financial availability and consider the stakeholders. The Board must also ensure that the company has appropriate risk management strategies and tactics set in place.
3. Delegating to management
The Board is not in charge of management. That is the CEO’s job. With that said, the Board needs to ensure they do not leech and intervene in management’s territory. Instead, they must delegate authority to management. The Board’s main job is to monitor and evaluate the implementation of any policies, strategies and business plans so as to aid management in the running as smoothly as possible and ensure that internal controls are safe and effective.
4. Ensuring accountability to all stakeholders
Stakeholders give a corporation financial and practical support. An organisation needs to ensure that communication to and from stakeholders is effective. They need to consider the stakeholders' interests to ensure that they feel safe in their decision to support the corporation.
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