How to understand the nuances of the work of the Board of directors? How do you evaluate the applicability of this practice to your company? What makes a Board successful? Read the answers to those and other questions in the article below.
Board of Directors as the Best Decision-Making Body of Your Company
After the collapse of such powerful companies as Adelphia, Enron, Tyco, and WorldCom, their boards of directors have become the center of attention. Maybe the directors were simply sleeping on the go? Maybe they acted in collusion with corrupt officials? Were they incompetent? It seemed that business disasters of this magnitude were only possible if one of the members of the Board of directors committed blunders or illegal actions. However, a closer examination revealed neither incompetence nor corruption in their activities.
The Board of Directors is a decision-making body, not an advisory body. It is a strategic management body, the main task of which is to carry out general (guiding) management of the company’s activities, as well as supervisory and supervisory functions. Its competence primarily includes the most important issues of the Company’s management, such as:
- determining the strategy, investment, and budget planning;
- establishing a system of motivation and evaluation of management activities;
- as well as supervision of the company’s assets and the reliability and efficiency of risk management systems, internal control, internal audit and the system of corporate governance.
In many ways, the functionality of the Board of directors depends on the role assigned to it by shareholders in a particular company at a certain stage of its development, taking into account the structure of the share capital, and the business organization model. The combination of collective competencies and experience makes the Board of directors capable of making objective and independent judgments, avoiding stereotyping and group thinking, bringing diverse ideas and strategic vision to the discussion process, and providing a careful consideration of key issues.
Board of Directors and Comprehensive Business Development Policy
As part of comprehensive business development policy in transition countries, it provides advice to companies, banks, governments, and other organizations on how to strengthen corporate governance practices to attract investment, and improve operations and stability during times of financial turmoil. The publication of this handbook is another milestone in IFC’s efforts to promote the best standards of corporate governance.
A successful Board of directors is a group of people who:
- meets regularly to evaluate the results and strategic development of the company;
- consists of at least owners and at least one independent director;
- able to isolate themselves from the daily routine and look at the business more broadly;
- discusses really difficult issues and makes strategic decisions regarding the future of the company;
- and most importantly, manages the company.
Each organization independently determines the composition of the Board of directors, taking into account the tasks facing it, the scale and specifics of its activities, as well as the possibilities of attracting independent directors to the Board of directors. For the effective performance of the functions of the Board of directors, it is extremely important that its composition be balanced, including in terms of qualifications, the experience of its members, and the number of independent members. Members of the Board of directors must act in good faith and reasonably in the interests of the company and its shareholders on the basis of full knowledge, with due care, and diligence.