Back to the Basics: An Overview of Board Member Responsibilities

An efficient board of directors is critical to executing core operations in a way that brings value to the company. But what exactly is a board of directors? What does its structure look like? What are the roles and responsibilities of a board member? To understand what makes an efficient board, let’s review the basic information about the board of directors.

The Board’s Importance

At first glance, it would seem that boards and board member responsibilities only have a small impact on company operations. But in reality, a board’s performance can make or break an organization. A recent study by McKinsey reports that boards who can execute core operations and maintain good board relations, deliver stronger financial returns for the company.

The extent of the effect of board members, also involves some of the common problems that companies have been facing for years. For instance, tension between the CEO and the management, or between the CEO and the board itself, can be due to the fact that the board was not that thorough in the recruitment and evaluation of the candidates for the CEO.

Considering the board’s effect on company strategy, direction, and operations, improving board effectiveness should be a top priority. Evaluate your board’s performance by checking how well they execute these six basic board member responsibilities.

What Is a Board of Directors?

In short, a board of directors is a group elected by shareholders to represent their interest through company performance. A board of directors establishes policies, oversees the management, and makes critical company-related decisions.

The law requires public companies to have a board of directors. Companies not required to have a board of directors are proprietorships, LLCs, or partnerships.

The board of directors, among many things, is responsible for steering the organization in the right direction and providing guidance. Prior to shareholders selecting the board members, the company bylaws describe their exact roles and duties.

Board of Directors Structure

Shareholders elected board members. There are two types of representatives on the board of directors—inside and outside directors.

Inside directors are chosen from employees or direct stakeholders of a company. This can be the CEO or COO, for example, or a shareholder. Inside directors are responsible for monitoring the business strategy.

Outside directors on the other hand can’t be direct stakeholders of the company. They benefit the board by having a lower conflict of interest and as a result a broader and unbiased perspective. The law requires publicly traded companies to include a percentage of outside board directors.

The board of directors structure in some Asian and European countries is split into an executive and supervisory board.

The chairman holds the top position on a board of directors. He or she ensures the board operations are streamlined and effective. At the same time, the chairman is also responsible for the communication between the CEO and upper management as well as the creation of business strategy.

Other positions among the board members are:

• The vice-chair
• The corporate secretary
• The treasurer

Board Composition

The board composition is critical to its successful and effective operation. Key characteristics of good board candidates are credibility, integrity, industry knowledge, leadership experience, strategic thinking, and communication skills>.

That being said, board composition and its resulting performance should be measured based on the evaluation of every individual board member but also the board as a unit.

What Does a Board of Directors Do? Responsibilities and Duties

1. Establishing the Organization’s Purpose and Direction

Essentially, it is the board that sets the overall direction of the company. This entails assessing the current strategy of the business and aligning it with the organization’s goals.

Board members cannot lead and cannot make decisions for its organization effectively if they know nothing about it. An important element of board member responsibilities is being  familiar with the purpose of the organization’s work and daily operations.

One way to start would be for the boards to take time to discuss the organization’s vision, mission, strategies, and policies. The board should have a good understanding of the challenges, opportunities, and threats that the industry is facing. Additionally, they should be able to connect with stakeholders and the management to have a better grasp of the context of the company they are serving.

2. Recruiting, Evaluating, and Monitoring the CEO’s Performance

Recruiting, supervising, retaining, and evaluating the CEO or executive director is probably the most crucial responsibility of the board. Think of it as the board being the scriptwriter of a play, needing a CEO who can serve as the director to execute their vision. Miscommunication between the board and the CEO can be a great source of tension within a company’s leadership.

Most conflicts experienced by a company are due to the misalignment between the CEO, the board, the management, and the rest of the employees. It is reported that a significant number of CEO turnovers are due to the candidate not fitting in the company culture. This highlights the importance of the board’s responsibility to properly screen and recruit a new CEO.

Boards can prepare for this task by figuring out what they first need and expect from the new CEO given the company’s current situation. Then they can start by listing down specific skills or characteristics that they think would be necessary for the CEO to effectively execute the company’s plans and strategies. Some other important considerations might include the candidate’s leadership style, ability to represent the company to stakeholders, and adaptability to the company culture.

3. Safeguarding the Company’s Assets and Resources

Aside from being an overall guide, board members are also assigned to be overseers. Part of their board member responsibilities is to protect and keep track of the company’s assets and resources. Investors and other stakeholders make investments with the confidence there will be returns. The board is fully accountable to them and has the duty to be transparent about the use of company assets.

Boards must then take a more proactive stance with their fiduciary duties by actively monitoring and assessing the organization’s resources. Also, boards should avoid solely depending on the CFO to manage company finances.

The board’s responsibility however, is not only limited to financial assets and resources. It also covers safeguarding confidential data, physical infrastructures, and valuable connections/relations. Boards should not not shy away from involving themselves in company operations if they are to properly govern.

4. Setting Policies and Providing Oversight

Some common problems confronted by organizations are rooted in the lack of clearly established policies. For example, employees become unproductive and complacent because they feel there are no serious repercussions for their actions. Part of overseeing an organization involves reassessing, revising, and establishing policies to guide its employees to perform better.

After the board has established the purpose and direction of the organization, setting the company policies should come directly after. If employees are to perform effectively, then they need clear direction and guidance from management. Furthermore, defined company policies lay out what the company expects from each person, and what they can expect in return.

Policies should cover concerns related, but not limited, to personnel compensation, financial approval protocols, crisis management response plan, whistle blower situations, conflict of interests, and confidentiality provisions. Having standard policies can prevent conflict, confusion, and tension that usually arises from the lack of information and clarity.

5. Assessing the Board’s Internal Performance and Controls

How well boards perform and conduct their processes highly determines a company’s health and survival. Board members should remember then their responsibility to uphold the internal controls and guidelines to ensure they successfully deliver and fulfill their role in the company.

Constant assessment of the board’s own performance also promotes transparency and accountability within the company. This sets a good example for the rest of the management and employees. If the board has a culture that promotes transparency and accountability, the rest of the company will follow suit.

6. Investing in Personal Development

Boards face a lot of industry trend shifts, regulatory concerns, and economic fluctuations. That said, it is extremely important for boards to be highly adaptable and quick on the uptake. In addition to their expertise, being open to gaining new knowledge and skills will only help them make better decisions for the company.

At the end of the day, boards have the responsibility to steer their organizations towards the direction that serves the best interest of its stakeholders. With that, it is extremely vital that boards constantly reassess and reevaluate their performance by referring back to these basic board member responsibilities.

Roles of Directors

While responsibilities outline what the board members do, roles define how and to what capacity board members should be involved. We can therefore divide board member roles into three categories:

Advisor—board members support the board and the management team by providing expert advice.

Evaluator—while the day-to-day decision-making at a company is delegated to the CEO and lower management, the board members’ evaluator role is to regularly check whether the decision-making results in the expected or satisfactory performance.

Implementer—the board’s main implementer activity is the appointment of CEO in the representation of the company to direct stakeholders.

Board Meetings

Effective board meetings are the foundation of high-performing boards of directors. During the board meeting, the board discusses important company-related matters and makes critical decisions as to the direction of the company. The corporate secretary organizes board meeting. But it is only with the active support of the chairman and CEO that a meeting can be prepared and held successfully.

A board meeting should have a standardized format, kicking off with the approval of the last meeting’s minutes. After that, the board reviews the treasurer’s financial report.

Then committees present their reports (if applicable). Lastly, the meeting moves toward the discussion of special and general orders, both with a recorded account of voting. The board meeting format and the structure of the agenda can differ from company to company.

Board portals help board members practice governance and hold effective board meetings, where the proceedings are recorded in a compliant format and the deliberations are conducted with the use of interactive collaboration tools.

Here are the key elements that make up consistently successful board meetings:

• Schedule board meetings with at least a few month’s advance. This will help maintain adequate meeting frequency and facilitate content preparation.
• Prepare a clear and reviewed agenda. Organizers should deliver to participants a well-designed and planned agenda at least a week in advance. Distributing the agenda and all relevant documents early to the attendees will give everyone enough time to prepare.
• Control the meeting’s content. The board meeting content should focus on actionable matters and problems. The meeting organizer should prioritize agenda items requiring decisions and motions to allow for enough time for a productive discussion.
• Promote equal opportunity. The board meeting should facilitate discussion among all board members. Pressing matters and problems should be thoroughly discussed. The chairman makes sure the discussions are on topic. Rules of order and other determined best practices can help aid the discussions.
• Make a blueprint for follow-up actions. Backup all decisions with clear information on who does what and when to have a roadmap of next steps.

Poor board meeting attendance can be a sign of inefficiencies in how the board is conducted. Analyze the meetings and look for friction points that could have inhibited productive deliberations. Also, check whether every member has an equal opportunity to input their insight.

Differences Between Corporate vs. Non-Corporate Boards

Corporate boards share many similarities with non-corporate ones; however, roles of nonprofit boards, unlike their corporate counterparts, are made up of unpaid workers.

A corporate director’s goal is to serve in the best interest of the shareholders and efficiently manage shareholder risk. For a nonprofit board, looking after the interest of the stakeholders is the biggest responsibility. These stakeholders encompass the volunteers, community, primary donors, and beneficiaries.

While the corporate board’s mission is to make a profit, the nonprofit board of directors has to make sure that the organization achieves its goals and leaves a tangible social impact.

Boards Help Organizations Achieve Positive Performance Metrics

Knowing how the board operates and the specific responsibilities of each board member is critical for optimal performance. By working on and improving the way your board works, you will be able to create value and ensure sustainability for your organization.

With board members having lots of responsibilities that are critical to the performance of the organization, they must be empowered with solutions that help fulfill their duties.

To learn more about how technology can facilitate board operations, read more about our virtual AGM software or Convene’s comprehensive board portal solution that can help boards in their day to day tasks.

Aside from board members, learn also about the other positions integral to the boardroom such as the role of a general counsel, essential duties of a board administrator, what constitutes an executive assistant, and the role of being a corporate secretary.