By Emmanuel Zvada
CLARIFYING the roles of the board and management is crucial to preventing disputes in organisations. Failure to understand these different roles invites disputes and impairs the board’s effectiveness, which is the situation in many organisations.
Every board can be effective if it is organised as a collective decision-making body and if it knows its role.
This week, we will take a closer look at the role of the board and that of management. We will also discuss orderly board processes for conducting board meetings.
Board of directors
A dynamic board seeks to stimulate free flow of ideas, identify key issues, consider alternatives, and make informed decisions.
Boards are at the helm of every company to make important strategic decisions.
The board of directors is the most powerful team, having the power to internally guide and influence all other organisational actors. In fact, the principal work of boards revolves around complex decision-making.
The responsibility of board members is that of ensuring the economic performance and the strategy of a company.
It’s crucial to train the board to avoid corporate governance disputes which stem from inability to carry out its responsibility properly.
The roles of directors and managers are both important, yet different. It is not simply a matter of seniority — both in law and in practice, the director is responsible for all that a company is and for what it strives to be.
On the other hand, managers are concerned with things that already exist and these are employees, equipment and processes required for the company to do what it does.
Also, directors are responsible for the actions and decisions of managers. A director’s main duty is to define the vision for the business and devise and execute a strategy to attain the vision.
It is especially important for board members to know their roles so that they do not interfere with management. Similarly, management must understand its role and that of the board; otherwise board meetings can be consumed by routine or irrelevant matters that management should deal with.
Clarifying roles is crucial as it can avoid gaps that can develop in areas that the board believes are part of management’s responsibility whereas management assumes the board is taking care of that area.
Determining the mission, values, goals and strategic priorities
Setting the overall purpose for the organisation from why it exists, who it should serve, what services it should provide, and what values and ethical guidelines it should follow is the responsibility of the board of directors. This area includes the setting up of objectives and the development of broad strategic plans.
To do this properly requires assessing how well the organisation has performed in achieving the goals set for it as well as understanding the challenges and opportunities that lie ahead.
The board’s role in strategic planning entails identifying priorities, establishing goals and objectives, finding resources, and allocating funds to support the decisions that need to be made around strategic planning.
Fiscal and legal oversight and risk assessment
Today’s businesses are fraught with complexities and litigiousness like never before — issues that has the potential to destroy organisations overnight.
The pervasiveness of risk in everyday business means that boards must factor in risk as an integral part of organisational strategy. Technology has increased the pace of business transactions globally, which has increased the volume and speed of product cycles.
Ensuring that the organisation behaves in a fiscally and legally responsible manner includes such matters such as overseeing operating and capital budgets, investments, property management and compliance with various laws applying to the organisation.
It also includes risk assessment, attempting to identify areas in which the organisation is exposed to high risk.
CEO selection and evaluation
Ensuring that the best person holds the position of CEO and performs at a satisfactory level of competence.
Selecting the chief executive officer (CEO) and planning for CEO succession are among the most important responsibilities of a company’s board of directors.
In ideal circumstances, the succession process will be managed by a trusted incumbent CEO with the board or a board committee overseeing the process, reviewing the candidates and providing advice throughout.
The board of directors appoints the executive management and sets out its responsibilities and conditions.
Establish a policy-based governance system
The board has the responsibility of developing a governance system for the business.
Corporate governance in the business context refers to the system, rules, practices, and processes by which companies are governed.
In this way, the corporate governance model followed by a specific company is established by the board.
The rules that the board establishes for the company should be policy based.
In other words, the board develops policies to guide its own actions and the actions of the managers.
The policies should be broad to allow the board and managers leeway to achieve the goals of the business.
The board’s relationship with management
The relationship between the board of directors and management cannot be described as that of an employee and his or her manager.
It is in the board’s best interest to develop a good working relationship with managers. Corporations run best when the board and senior management hold the same perspectives on strategy, priorities and risk management.
Boards must communicate clearly and in a timely manner to engender a sense of mutual confidence and trust with managers.
It’s important for the board of directors to have regular conversations with managers about risk mitigation and prevention.
Only when the board and the management coexist in a harmonious manner can there be true progress for the organisation.
For this to happen, there must be a provision for having independent directors — those directors that are not affiliated to the management.
The point here is that if there is impartiality and separation of the directors aligned to management and those from outside there will be a semblance of avoidance of conflict of interest.
The board and management should try to achieve the same vision and objectives so a team approach based on trust and respect is more appropriate than a boss-subordinate relationship.
Central to this relationship is a clear mutual understanding of roles and boundaries which allows each party to respect the other’s responsibilities, contributions and expectations.
- Emmanuel Zvada is a human capital consultant and international recruitment expert