Board of Directors Governance: Principles and Boards’ Roles

Governance, similar to any organization, forms the fundamentals in making decisions for the welfare of the company and stakeholders. To empower governance within the organization, personas, aka the board, should start and keep the ball moving to create long-term value and sustainability for the company. The board of directors is responsible for overseeing, planning, and managing the implementation of daily operations.

Board of directors governance is the combination of people, systems, and processes to run the company. Effective board governance comprises principles that are essential in the oversight, insight, and foresight of the business. Read below on the fundamentals of board governance.

Principles of Board of Directors Governance

There is no one-size-fits-all approach to governance, primarily because organizations differ in industries, goals, and vision-mission. However, there are guiding principles that make up the fundamentals in developing fit structures, policies, and strategies to build sustainable long-term value.

Board of Directors and Management

These two entities are often interchanged or taken as similar, in terms of their roles. One of the key distinctions between the duties of the directors and the management includes monitoring and managing the business.

The board delegates the CEO — who leads the management — to execute and manage the strategies and business operations. This applies across duties, including financial planning, risk management, and business resiliency. In a nutshell, the board has an oversight role to ensure long-term value, while the management runs the company under the board’s oversight.

An effective board of directors governance demands a clear understanding of the respective roles and responsibilities of the board, the CEO, and management. Moreover, governance requires a harmonious relationship between the board and the management. While there are cases, such as crises, where greater board involvement is required in some management duties, this should not be a point of duplicate work for both entities.

Board Structure

Under board structure, governance can be defined by identifying the board composition and leadership of an organization. This includes determining the board size, diversity of backgrounds, gender, tenure, independence, and commitment to service. The board of directors must be composed of diverse relevant business experiences, strong characteristics, and objectivity to represent the demands of the stakeholders while providing unique perspectives on strategies and risk management.

Approaches to leadership also fall under board structure. Accordingly, there must be a lead director that must be appointed by the independent directors to chair executive sessions. Understanding the responsibilities of each director is crucial to assess which structure is the most appropriate.

Board Committees

A good committee structure is banked on addressing the areas in more depth than at the board level. Boards must decide on the membership and chairs based on the recommendations of the nominating committee. The committees are expected to report their regular activities to the board and meet all independence and requirements prescribed by the rules and law.

The responsibilities and function of each committee must be defined in the written charter approved by the board. Below is the list of committees central to good board governance, but other board structures may include members on ad-hoc committees.

• Audit Committee — Responsible for handling and managing the financial acumen and assets of companies. Members discuss the issues relating to the financial statements and oversee internal control systems, internal audits, and compliance programs.
• Nominating Committee — Sometimes referred to as the Corporate Governance Committee, it oversees the functions of the board, committees, and stakeholder management. The committee also conducts succession planning and can oversee board evaluations.
• Compensation Committee — Responsible for establishing and measuring the goals of the CEO and the management, besides the director compensation practices. The members also help align executive compensation with the interests of the shareholders.

Meetings and Operations

Good board governance also relies on the duties of each board member. Apart from their general service of holding positions such as committee chair or lead director, here are some of their tasks that require significant time and attention.

• Meetings and Agenda — Board meetings are recommended to allow directors to explore issues, strategies, and corporate trends in-depth, as well as tackle regulatory changes. Setting the board meeting agenda must be carefully thought of to cover all urgent discussions and still has time for open deliberation.
• Executive Sessions — Executive session, or a special meeting in a board meeting outside the presence of the CEO and senior management, must be conducted in compliance with exchange rules. Such meetings require confidentiality, candidness, and unfiltered feedback regarding the company’s financial health and/or the performance of the CEO.
• Director Training — To keep up with the shareholders’ needs, board members must undergo training to improve their corporate experience, leadership, and communication skills.
• Digitalization — In this digital era, boards must initiate the utilization of tools such as board portals for efficient meetings and information dissemination. Such tools are designed with easy-to-use features and stringent security measures to ensure productivity and confidentiality.

Shareholder and Stakeholder Management

Companies do not only serve their own interests when doing business. They also strive to consider the interests and demands of the shareholders and stakeholders — the employees, customers, communities, and the environment.

To engage shareholders and investors, boards must be able to open dialogues with them on the plans and performance of the company. The board should also give the shareholders their rights to participate and vote during annual meetings. The employees, likewise, must also be provided with their rights, compensation, and safety at all times, especially during operations.

For the communities and the environment, the board is responsible for ensuring that their business contributes to the betterment of society and does not cause economic, social, and environmental risks.

Board’s Role in Corporate Governance

The board’s roles may vary based on the goals and purpose of the business. For-profits and nonprofit boards differ in their responsibilities. As companies and the era they operate in continue to evolve, boards should be able to address issues and make adjustments that are the best fit for the organization. Below are the top responsibilities of boards to uphold corporate governance.

1. Establish or redefine the corporate vision, mission, and purpose
2. Create and monitor the organizational strategic plans
3. Appoint and evaluate the chief executive
4. Nominate directors and make decisions on committee membership
5. Provide proper financial oversight
6. Protect the company’s assets and members’ investments
7. Evaluate the company’s practices for business continuity and resiliency
8. Oversee and assess the annual operations and budgets
9. Ensure legal compliance and stay updated with regulatory changes
10. Uphold integrity in the company’s financial reports and disclosures on sustainability performance

Board Governance Training

As the main drivers of governance, boards are recommended to undergo governance training. Whether they are in their early years of holding a board position or have seasoned board experience, continual training is an important investment for making an effective board of directors.

One of the apparent reasons for board training is to upskill the current and new board members as they lead the organization. Continuous education on governance can ensure that boards are up to date with their latest legal responsibilities, and can “future-proof” the business by developing newer strategies.

Linked to improving the governance of the board is mentorship. Experienced directors have learned much about corporate governance from the past and current boards they have served. Mentoring newer board members can help with succession planning and evaluation of past and present strategies for the future.

Governance education can often be organized by the company or through a third-party institution. Here’s a list of the important topics covered in board governance training.

• Strategic leadership
• Goal-setting and effective decision-making
• Financial Stewardship
• Corporate responsibility
• Board effectiveness or Board self-evaluation
• Best practices for directors
• Effective communication and delegation skills

Constant board training can provide better governance for the company. This exhibits the commitment of each board member to the values and purpose of the company, bringing greater value to its shareholder and stakeholders.

Effective Board of Directors Governance with Convene

Ensuring better governance calls for an important duty of pioneering digitalization. Boards must be able to select the best tool that will assist with their tasks without compromising board principles and security. Board governance software, such as Convene, streamlines board meetings and operations with smart features designed for directors. Convene also creates an expedited workflow for making decisions, while ensuring all documents and discussions are kept secure.

Now is the time to enhance your board governance. Learn more about Convene, and see how it can empower better governance for your directors.