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The Board’s Corporate Governance Role

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Boards have a legal requirement to exercise due diligence in ensuring that an organization achieves its goal, has a sound strategy and doesn’t run into legal or financial difficulties. The way boards fulfill their responsibilities differs greatly and is dependent on the particular circumstances.

Boards frequently make the mistake of becoming too involved with operational issues which should be left management or are unsure about their legal obligations for decisions and actions taken on behalf of an organisation. This confusion often results from not being able to keep up with the ever-changing demands placed on boards, or from unanticipated challenges like unexpected staff resignations and financial crises. Usually, this can be remedied by taking time for discussions about the challenges faced by directors, and by giving them instructions and a simple set of documents.

Another common error is when the board over-delegates its power and chooses not to look into the issues it has delegated (except for the tiniest of NPOs). In this scenario the board loses the assessment function and cannot determine whether the operating activities contribute to a satisfactory performance of the company.

The board must also establish a system of governance that includes how it will communicate with the general manager or chief executive officer. This includes determining how the board will be scheduled to meet regularly, how members will be chosen and removed, and the manner in which the board will make decisions. The board must also establish information systems that are able to provide accurate data on past and future performance in order to assist in making its decisions.

April 23, 2024

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