Best practices in corporate governance recommend that boards give the bulk of their board seats to independent directors. Independent directors do not have inside connections but are chosen for their expertise in managing or leading other major companies. In particular, a board relies on independent directors to challenge the board’s views to make sure decisions are made well. Another critical duty the board has is overseeing the hiring process for senior business positions.
Essentially, board directors serve as the corporate guardians who oversee for the time being while providing DIRECTION going forward. Ultimately, a board’s ultimate responsibility is to guide the corporation in a positive, legal, and ethical direction. Another duty of the board is ESG reporting and its goal, like other disclosures, is to shed light on a company’s ESG actions, improve investor transparency, and inspire other businesses to do the same.
Simply stated, boards should look forward and take action, starting right now, to steer the company in the right direction, guided by the right strategies and goals. Boards need to make sure that they have the tools necessary to succeed in the coming age of shareholder capitalism. Boards need to know what the expectations are from all stakeholders and take the initiative in making sure that their companies are meeting these expectations, otherwise risk being replaced.
The entire board should feel secure in their plans for dealing with uncertainty, as well as in their ability to take advantage of opportunities for the future, as well as identify and manage actual and potential risks. To build confidence with investors, the board’s directors need to be able to articulate their plans going forward, so investors can get a clear understanding of the long-term prospects. Boards should communicate clearly and promptly to foster a sense of confidence and trust between themselves and their managers.
Boards should identify if their leadership teams (ChRO, CIO, CISO, communications, government affairs, supply chain) are aware and equipped for emerging demands created by shareholder capitalism, and engage their leadership teams (ChROs) within the ring in discussions about governance so that boards are provided with the necessary information to oversee and act effectively.
Effective corporate governance requires boards to create written, explicit descriptions of roles for the Board directors, Board Chair, CEO, and key Board committees. Successful corporate governance is only possible if the board is competent in performing these essential roles and responsibilities. In any professional organization or enterprise, from family-owned, closely-held companies to major public companies, the board of directors has many important roles and responsibilities.
The main role of a board is to evaluate the strategy, or the big-picture approach, of any professional organization or business, to benefit shareholders. Ultimately, it is the board’s role to give professional organization stewardship and ongoing direction. Another role of the Board would be ESG integrated reporting which helps firms convey a whole story about what drives their success. It gives investors a better knowledge of how ESGs contribute to long-term company value creation.
Each member of the board has one duty, and the board as a whole must answerable for all activities of the corporation. When it comes to a board’s role, it is their responsibility to be responsible for a company’s activities, regardless of whether the company is a for-profit, not-for-profit, or publicly traded corporation. The organization’s corporate governance is responsible to board members, who are, in turn, responsible to shareholders.
The directors are either elected by shareholders or appointed by the other members of the board, who represent the shareholders of the corporation. As agents of shareholders, corporate directors are responsible for making decisions that are in the best interests of the company. A corporation’s board is charged with making significant decisions, such as corporate officer appointments, executive pay, and dividend policies. It is often said that a corporate board is charged with providing supervision, savvy, and vision.
This process is usually better managed by a committee of the board, such as nominations or governance committee, who is charged with executing and overseeing the process. To perform an overall review of the board, the governance committee may assess the board’s strategy knowledge and development, quality of the discussions at meetings, the degree of candour and use of conflict, and the reliability of reports. A full board review may involve evaluating dimensions including its understanding and development of strategy, its makeup, access to information, and the level of candour and energy. In an individual self-assessment, board members may want to look at the use of their time, appropriate application of their skills, knowledge of the business and industry, their familiarity with the major staff, and overall preparation levels.
When developing strategies to achieve short-term company success, boards must make sure that board actions do not negatively impact the long-term organizational success and the ability to achieve its objectives. Having access to precise details builds trust within an organization and helps each person to make better decisions that support a company’s objectives. Everyone in the organization knows what role he or she is required to play in helping the company meet its objectives, and each is held accountable for his or her actions.
Across businesses and organizations, there are some general roles and responsibilities for the members of a board, which we explore below. Effective boards demand that their members perform various roles, in some cases diving deeply into specific details of the business, in others serving as the Devils Advocate, in yet others serving as the Project Manager. Despite differences, the directors on the board can, in some circumstances, give some power to the CEO or the CFO.
The CEO, the chair, the leading directors, and the board as a whole must show by their actions that they understand the distinction between disagreement and disloyalty. A robust system of corporate governance provides transparency, and boards should be held accountable when targets are missed and when performance is generally subpar. Good corporate governance establishes a set of rules and transparent controls where shareholders, directors, and officers all have coordinating incentives. Accountability is far more nuanced, and understanding board performance differs from organization to organization.