The importance of the board of directors cannot be overstated. They are critical to the success of an organization and ultimately responsible for its success or demise. Collectively they bear the legal responsibility to govern the organization.
The board of directors duties and responsibilities should be clearly defined. Each individual board member needs to fully understand what’s expected and needed of him or her, and be held accountable when they get off track. If you don’t know what the job entails, it’s impossible to do it well.
The board of directors do their work in 3 main areas: governance, strategic direction and accountability.
Board governance is the framework that controls how the board is structured, how it operates and how decisions are made. It includes the processes, rules and systems to help boards understand their specific responsibilities among each member and committees, as well as guides how to best work with management.
The board of directors help decide or at least inform how the organization grows. Board members who bring strong strategic experience in a broad range of industries can help the organization address opportunities and potential threats. Strategic planning should be done on an ongoing basis by the board and include both short and long-term goals.
The board has a legal responsibility to provide oversight and accountability for the organization. They must ensure that all legal and ethical standards are followed and the organization is appropriately managing their assets and resources.
The primary role of the board chair is to lead the rest of the board and act as a direct liaison between the board and management. Experienced board chairs know to perform their job well they need to stay in loop on all board activities and develop solid relationships with other board members, the chief executive, management, corporate secretaries and board committees.
No matter what type of organization – non profit, private company or publicly traded – every board member shares some basic fundamental responsibilities but their roles also differ.
All corporations must have a shareholder-elected board of directors. Private companies are not required to have a board of directors, but can adopt this form of management if they choose to do so. The primary difference between a private board of directors and a public corporate board is that the latter are responsible to the shareholders. Private companies are not legally obligated to fully disclose financial and operating information, so the board of directors may play an advisory role with less authority.
A limited liability corporation (LLC) does not have a formal board of directors. Instead, the owners of the LLC, act as an informal board of directors and are often referred to as a board of advisors. The owners play a natural executive oversight role for the LLC because of their financial interest in the company.
At bare minimum, all board members regardless of the type of organization must:
The board may be responsible for creating and reviewing the mission and purpose statements that articulates the organization’s goals, means, and primary constituents served. Boards must actively participate in an overall strategic planning process and monitoring of the plan’s goals. As part of this, they may also monitor the organizations’ programs and services to determine which are consistent with the organization’s mission and monitor their effectiveness.
Boards need to ensure that they’re protecting the organization’s assets and managing them responsibly, including carrying out its fiduciary responsibilities. For example, a board should work with the chief financial officer to establish a budget, ensure proper controls are in place for incoming and outgoing funds and review the organization’s financial statements. This may also include establishing an audit committee and completing an internal audit every year.
Board members should serve on committees or task forces and offer to take on special assignments, as this is where the bulk of board work gets done. Example committees include governance, finance, executive and audit committees. Boards can also create ad hoc committees or working groups to accomplish specific goals or tasks.
The board is responsible for vetting and selecting a qualified candidate for the CEO or executive director to run the day-to-day management activities of the organization. Once appointed, the board will collaboratively work with the chief executive to meet the organization’s short and long-term plans. On an annual basis, the board of directors is also responsible for evaluating the performance of the CEO. The bulk of this work is most likely done through a committee, in which they will present their findings to the full board.
The board is responsible for recruiting, nominating and appointing new board members with the right mix of skills, knowledge and experience. Most boards assess their performance on an annual basis to identify gaps and form a strategic plan. An important topic for today’s boards is to address diversity and inclusion in their board recruitment and selection.
For new board members, it may be helpful to provide a quick list of their core roles and responsibilities. See this checklist from BoardSource.
Nonprofit board members have additional legal responsibilities. They must meet three standards: duty of care, duty of loyalty and duty of obedience. In the US, there are several states that have statutes adopting a variation of these duties to use in court to determine whether a board member acted improperly.
Duty of care relates to the level of competence expected of a board member. A board member is expected to exercise reasonable care when he or she makes a decision as a steward of the organization.
The duty of loyalty represents a standard of allegiance to the organization. A board member must act in the best interests of their organization and never use information obtained as a member for personal gain.
The final standard requires board members to act consistently towards the organization’s mission and central goals. This duty requires board members to obey the law and the organization’s internal rules and regulations.
In addition to these legal responsibilities, non-profit board members are often expected to actively network or advocate on behalf of the organization. This could include identifying new business opportunities or opening doors for the organization to achieve their mission.
Generally speaking, board members should be independent to the organization, unrelated to each other and hold no conflict of interests. As many professionals desire to work on boards that align with their personal and professional interests, it’s important to evaluate any potential personal or financial conflicts of interest that could compromise your judgment.
You should only accept a board member position if you can:
The CEO or executive director is the top senior executive over management and has a major impact on the success or failure of a company. But the board of directors arguably may have more power than the top chief executive. This is because the board is ultimately responsible for reviewing the performance of the CEO and if a new candidate is needed, they are responsible for vetting and selecting the candidate.
But each role has a unique impact on the organization. Think of it this way: the board of directors operate like the pilot of a jumbo jet at 30,000 feet level to oversee the big picture and make the adjustments as needed. The CEO operates like the pilot of a Cessna plane at the 2,000 feet level. Employees and volunteers of the organization operate on the ground, like the drivers of transport trucks completing the needed deliveries and pickups.
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