Effective Board of Directors

Asian business team in multiracial. Diversity business people form by different races, Indian, Malay, Indonesian, Chinese standing in office environment. The Board of Directors is the governing body for a company. All major decisions will need to be ratified by the Board. You will need the Board's approval to sell your company, approval to hire or fire a CEO, to do a major acquisition or to do a major financing. On all matters of major strategic importance, the Board will need to be engaged, involved, and supportive. However, the Board should not run a company, that is the role of the CEO and his/her senior management team. The Board's job is to make sure the right team is at the helm, not to be at the helm themselves. Boards that get too involved, that undermine the management team are hurting the company, not helping the company. Boards work for the company and the company is their responsibility. They must always act in the best interests of the company and its major stakeholders; the employees, the customers, the shareholders, the debtholders, and everyone else that is relying on the company to deliver on its promises.

Board Meetings

It is the role of the management team to prepare timely and accurate information to the Board in advance of a Board meeting.  The information should be in an easy to read and summarised format with access to more detailed data if required. The information should be prepared well in advance of the Board meeting to allow the Board members time to review and evaluate. This is often a difficult balance to arrive at and should be constantly reviewed to ensure the Board can make effective decisions.

Deliberation by the Board

Once the Board understands the issues and the underlying data, deliberation by the Board members is required and will often involve different opinions within the Board.  An effective Board will encourage debate of the issues to arrive at agreement. Non-executive directors are important in this function to provide impartial views to the Board for debate. Good directors are deeply engaged in the important issues and they are upfront and open about their opinions on them. They are respectful of the other Directors and listen carefully to opposing opinions. Boards should try to reach a consensus and then act on it and must not procrastinate on the big decisions. Boards need a leader to drive them, the Chairman.  The Chairman’s role is about influence and persuasion, they can control what is discussed and for how long and ensure important issues are given sufficient time for discussion.  If they tell the Board what to do, they are stepping into the role of the CEO.  A good chairman needs to be a good listener and to understand group dynamics in order to chair board meetings well. Chairmen need good judgement and they need to be close to the CEO, but not too close. A good Board manages itself and treats the CEO as a peer and gives the CEO's opinion great weight, but the Board should not be a “rubber stamp”. The Board should push the CEO and the company to make the most of the opportunities available to the company and should ask the hard questions that must be asked. Members of the Board should be rotated over time to allow to keep the thinking fresh while at the same time retaining the understanding and knowledge of the organisation and the industry in which they operate. For a Board to do its job, it must represent all stakeholders' interests and not be over-powered by one such stakeholder.

What questions do you have?

We are happy to help. Please post your comment below or call Paul Leonard, Partner at Cooney Carey, on 01 677 9000. Alternatively, send him an email: pleonard@cooneycarey.ie

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