The role of the board
Never before has corporate governance been more important or under such close scrutiny. Businesses are operating in a dynamic, changing world and facing increasing levels of regulation. Recent years have also seen numerous well publicised corporate scandals involving fraud, corruption, questionable business practices and unacceptable behaviour. This changing and challenging environment makes it a big responsibility, and a tough gig, to be a board director. Good governance and effective boards and committees are essential to ensure that companies are not only well run but are heading in the right strategic direction. So, what is the role of the board?
Governance guru Bob Tricker describes the core role of a board as twofold:
• Conformance – past and present focussed, ensuring the business is well run
• Performance – future focussed, ensuring the business is going in the right direction
As depicted in Figure 1, the duties of the board include four key elements:
Figure 1: The basic board perspective and processes
Outward looking Accountability
Inward looking Supervising Executive Activities
Past and Present focussed
1. Accountability to shareholders and other stakeholders. The buck ultimately stops with the executive team and the board.
2. Supervising executive activities ensuring appropriate reporting and management controls are in place to oversee executives. It is a responsibility of the board to have evidence and controls in place to make sure executives are acting and performing in the best interests of shareholders, within the required ethical and industry standards, and within the law
3. Policymaking to ensure the policies, procedures and plans are in place, and regularly reviewed.
4. Strategy Formulation ensuring appropriate long-term vision and strategy is in place. This is increasingly critical given the level of change and uncertainty many businesses are facing including the digital revolution, emergence of new business models, impact of Brexit and the new competitive forces. The CEO and his or her team “own” the strategy, but the board provides critical oversight.
It is important to allocate sufficient time to address each of these 4 areas at board meetings. An appropriate balance between conformance and performance is essential for a board to be effective.
The stakes are high for boards and directors. Focussing on the conformance and performances responsibilities of the board and ensuring board agendas are balanced and manageable are essential to achieving and improving board effectiveness.