What is a Board’s Job Anyway?

Written by on November 7, 2013 in Board Role and Duties with 1 Comment

Black and white tree with vines. Upland Consulting.“If you and I always agree, one of us is redundant.”

If a board is to add value to a business, it won’t be by rubber-stamping either management or shareholder views.  A board has a distinctive job to do: a difficult job, and a widely misunderstood one.

There are paradoxes, ambiguities and unknowns around the role of a board of directors, precisely because of the nature of the board’s job.  If it were a simple job to define or check, you wouldn’t need a board to do it.  But one thing is very clear: the law expects each director to exercise active, individual, well-informed judgement on each issue.

Indeed, how to approach the board’s job is easy to state:

  1. Directors have a duty of care to the company, as a legal “person” separate from any other person or group.  Their duty is to make decisions in good faith, in the interests of that person.
  2. Those decisions are to be made with care and diligence; directors are actively to inform themselves and come to a considered view about the right course of action.
  3. Conflicts of interest are to be avoided.

Those three rules have always caused a great deal of debate, and not a few court cases.  Also, of course, there is a general duty of confidentiality, and various duties of legal compliance.

Yes, but what are these decisions, these actions?  It’s convenient to make another list:

  1. Governance.  That is, ensuring that the company is properly run, within the law and other parameters, that the chain of command and delegation of responsibilities is clear, that all is shipshape.
  2. Strategy and performance.  Whether the board itself formulates strategy, or reviews and critiques strategy developed by the CEO and executive team, it is the ultimate custodian of company strategy.  The board also holds management to account for fulfilling the agreed business plan.
  3. Risk management.  Establishing the company’s risk appetite, understanding its risk environment, and responding to changing risk, all at the level of the whole enterprise, is the board’s job.
  4. Manage the CEO.  Whatever the job title — GM, MD, CEO — it is necessary to delegate final executive responsibility to one person.  That delegation is done by the board, which should appoint, manage, and if necessary dismiss the chief executive.
  5. Self-improvement.  Sometimes forgotten, but very important: it is essential that a board review its own skill mix, performance and future needs.  The business game isn’t static, and a board can’t be either.

So what’s not on the list?  Management, notably.  It is not the board’s job to manage or run the company, but to guide, direct and oversee how the managing is done.  Where is this “green line” between directing and managing?  It depends.  This is one of the many cases where a board must exercise careful judgement and position the line so that management is free to manage the company but not to wreck it.

Does this all seem fuzzy, under-defined?  Welcome to a director’s world.  It’s exactly at the point where the clear definitions and standard procedures run out of steam that we ask a board to step in and exercise its best judgement.


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