At their core, boards of directors provide oversight, approve the most material decisions and advise, while management has accountability for strategy, operations and the organization. The best do these together, complementing and supporting the other’s roles and strengths. So easy to say. So hard to get right across different types of boards and organizations.
Board Accountabilities And Responsibilities
As a general principle, a board of directors of a for profit company in the United States is charged with “maximizing the value of the corporation for the benefit of its shareholders.” Boards do this by making decisions and providing oversight in compliance with the directors’ duty of care and duty of loyalty. Essentially this means board members must exercise good business judgment in the best interests of the organization across governance, strategic, organizational and operational areas without regard to personal gain as they:
- Set broad policies and objectives and oversee rigorous processes taking into consideration compliance, finance, management, legal and risk issues. (Governance)
- Approve strategic plans, major expenditures and transactions, and the acquisition or disposal of material assets or the entity itself. (Strategic)
- Hire and fire the CEO. Approve top management appointments and succession, and compensation plans for the CEO and top management. Evolve and strengthen the board itself. (Organizational)
- Approve plans to obtain required financial resources, annual plans and budgets and oversee efforts to sustain and enhance the organization’s public image. (Operational)
Applicability Across Different Types of Boards
Public boards represent the shareholders of public companies. They are subjected to the strictest regulations and scrutiny and spend most of their time as boards involved in oversight and decision-making. Management needs to give members of these boards what they require for oversight and decision-making and then to implement.
Private fiduciary boards represent the owners of non-public companies. While they are not subject to all the public regulations and scrutiny, they are subject to many of them and must provide oversight and decision making in the interests of all the owners.
Private non-fiduciary boards primarily have advisory and oversight roles as the controlling owners maintain the fiduciary responsibility. Those owners may be private equity firms, families, or individuals and their organizations may be operating with different levels of maturity and different issues and opportunities. Care should be taken lest the “directors” take on fiduciary duties. Management needs to pay attention to the shadow boards behind the official boards to make sure they are implementing the right decisions.
Non-profit boards serve different roles in addition to their fiduciary duties potentially including fund-raising, contributing personal time, making connections for the organization with strategic partners and acting as advisors or representatives of critical stakeholders.
Creating Value Together
As PrimeGenesis partner Rob Gregory says “If management and the board are on the same page with a shared vision as the underlying foundation for understanding respective roles and responsibilities, most relationship issues can be managed.” That shared vision of what will happen and when helps clarify when board members are making decision, overseeing and supporting and when, why and how management need to provide board members with the tools and support they need to do so.
In the best value-creating partnerships, management appreciates its board members’ oversight, approval and advisory roles and provides those board members with the information they need to do those well. For their part, board members are careful not to confuse oversight, approval or advice with delegated accountability and responsibility and let management manage.
With that in mind, ideal boards’ composition complement management’s strengths in leadership and industry and functional expertise across technology, intellectual property, finance, audit, human resources (including compensation and benefits), risk management, marketing, government relations and geographic/global perspective. Arguably some of the most material assets boards can acquire, develop and dispose of are the board members themselves.
The key to best creating value together is the partnership between the board and management. So:
- Ensure everyone shares the same vision of success, major milestones and end-game timing.
- Clarify roles, responsibilities, interdependencies, hand-offs and how best to operate together.
- Assemble and nurture complementary strengths on board and Management teams.
 Corporate Director’s Guidebook – American Bar Association. Note some U.S. state statutes allow the board to take into consideration the impact of decisions on the community, employees, etc. and that there are statutes that, so long as shareholders are told upfront, allow trade off of profit for social good. Similarly, European boards serve “stakeholders” vs. “shareholders.”