“Running a business is a bit like driving a car, very fast and at night. Your headlights only show you what’s out there in the dark with a lot of potholes and other hazards that could damage your vehicle or worse, ” explains Wayne Norrie, a Chartered Fellow of the New Zealand Institute of Directors.
“A board of directors looks like a team of navigators using floodlights to help them anticipate what lies 500 meters ahead. The board members have encountered similar obstacles before and know what obstacles and hazards might be encountered. They want to help you steer round them. Or they may be a good time to take more fuel (capital) on board, “Norrie adds.
In terms of corporate governance, the role of making the rules for the race, determine the winning strategy, and then hand off the car to manage. They should then drive according to the rules and the strategy.
In more traditional terms, according to the Australian Institute of Company Directors, the board is responsible for setting up the corporate governance framework, meaning “the overall governance and strategic direction of the organization. This means delivering accountable business performance in a business relationship. This includes compliance in all reporting on organization’s activities. “In setting up governance for the company, the board structures across the organization, and fixed rules for behaviors.
Corporate Governance – The Board’s Compliance / Performance Dilemma
The board of directors has to try to move the organization forward, and make plans for its future. For this reason, corporate governance mandates that the board monitor performance, and develops strategies to improve performance.
At the same time, the board must review. Is management following the board’s plans for the company? Are activities that carry risk with them being carefully managed? The board must therefore appoint the CEO and approve the other top managers – this involves both performance and risks.
The organization’s assets and operations are to be complied with, and the organization’s assets and operations are to be complied with not exposed to undue risks through appropriate risk management, “the Institute points out.
The differing emphasis on the two areas of organizational performance and compliance / compliance can result in conflicting pressures on boards and their members. Boards of directors must balance these roles and give appropriate attention to both.
The above model, created by Robert Tricker , shows the conflict boards experience:
In fact, many boards get stuck in the accountability part, and their work in progress-looking strategy – this is a classic mistake, of course.
Board Composition – Getting the right mix of skills
Most boards start out with directors who are close to the company. They often have the same kinds of skill sets, from working in the organization or ones like it – engineer in an engineering firm.
The problem is that, today, boards must face a number of challenges that are very different from the skill set that the first board members have. Engineering firms have cyber security – it is the responsibility of the board. Engineering firms also need board members skilled in marketing, business development, and many other areas.
This is why we need a broad mix of skills, knowledge and experience. Different directors have different skills and backgrounds. The goal in selecting board members is to make a mix that can work as a well-rounded team of people. In selecting a new board member, the board should consider the skills, knowledge, attributes and experience needed to govern the organization both now and in the future, “the Institute note says.
Structuring the work of the board – Committees
The board is therefore tasked with a vast amount of responsibility. It’s often difficult to get through it all at a single meeting of the entire board. This is why most boards create committees to manage work in the most pressing areas. For example: Nominations (who wants to replace management and board members); Remuneration (how much should board members and executives be paid); Audit (financial and risk reporting).
“ Committee work divides the board’s work into manageable tasks. Committees are smaller groups with a tight focus on a particular issue, “explains the Center for Nonprofit Management, in a note.
The board’s role in strategic planning
One of the board’s most important functions is strategic planning. Management runs the company and suggests strategy, but the board must develop and approve it.
“An important part of developing and implementing strategy is to delineate between the roles of the board and management. According to the organization, its current situation, its size, its people and any other number of factors. High-level teamwork on a sound and highly skilled executive team who can help shape the essence of a sound strategic direction for consideration and approval by the board. In this case, the board’s role more on questioning, challenging and clarifying, “the Institute says.
Diligent Governance Cloud: A reliable tool for achieving compliance
Boards make many important decisions, many of which are confidential or sensitive in nature. Diligent therefore offers Governance Cloud that offers the best practices by keeping their boardroom in the boardroom.
A board portal is a single solution for best practices for board processes, such as analyzing the composition of boards. Diligent Boards provides a secure platform for board communication, collaboration, board development and board evaluations.
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