What Does a Board of Directors Do?
The board of directors is responsible for overseeing the management and policies of the company. Their duties include setting the overall corporate strategy and objectives, ensuring that the organization has sufficient resources and people to meet these objectives, providing effective oversight of the organization’s operations, and making financial decisions such as approving budgets, investments, and acquisitions. Additionally, the board of directors is responsible for ensuring that the organization operates in compliance with applicable laws and regulations.
Types of Board of Directors
There are two main types of boards of directors — executive and non-executive. An executive board of directors typically consists of the company’s highest-level executives, whereas a non-executive board of directors is composed of individuals outside of the company who are appointed to provide oversight and advice.
Benefits of Having a Board of Directors
Having a board of directors can bring many benefits to an organization, including:
- Accountability: The board can ensure that the organization maintains a high level of accountability by providing oversight and checking on the progress of the organization.
- Expertise: Board members bring their expertise and experience that can be leveraged to help guide the organization and make informed decisions.
- Objectivity: Having an external board can provide an unbiased and objective perspective that can help the organization make better decisions.
- Networking: Board members often have access to powerful networks that can be a valuable resource to the organization.
Roles and Responsibilities of Board Members
Board members have several roles and responsibilities, such as:
- Set Board Policies: Identify and set board policies that guide the organization’s direction and ensure that the organization’s activities are in compliance with applicable laws and regulations.
- Review Financial Reports: Regularly review financial statements, cost control activities, and the company’s budget performance.
- Engage and Interact With Employees: Engage and interact with employees, stakeholders, and other external parties to support the organization’s objectives.
- Monitor Performance of Management: Regularly monitor the performance of the organization’s management to ensure that the organization is achieving its objectives.
Risks of a Board of Directors
While having a board of directors can bring many benefits, it can also come with some risks, such as:
- Board Dysfunction: There is a chance that the board of directors may not be able to agree on decisions or function as a team.
- Conflicts of Interest: Board members may have conflicts of interest due to their individual business interests.
- Failure to Monitor: The board of directors may not have the necessary checks and balances in place to effectively monitor the organization’s performance.
- Lack of Expertise: If the board does not have the necessary experience and expertise, it may struggle to make informed decisions.
A board of directors can be a great asset for an organization and brings many benefits when properly managed. However, it also carries some risks and it’s important to ensure that the organization has the right mix of board members with the necessary expertise to effectively guide the organization.