A Winning Board: Responsibilities
Do you sit on a Board of Directors? Lead one? Work with one? Then tune in every Thursday morning from now until the end of the month to learn all about how to create, operate and work with a winning board. From roles and responsibilities to best practices and leadership tips, AG shares over 50 years of his experience with you.
There are four primary roles or responsibilities of any board - whether for profit or nonprofit.
1. Governance.
Boards must have full oversight of governance, fiduciary responsibility and the fundamental duty of care. They have the obligation to best represent the interests of share owners. They must hold the expectation that the CEO and their management team will be accountable, not only for complying with legal rules and regulations, but also for upholding the firm’s values, principles and code of conduct. Business and nonprofit organizations respond to the tone at the top, and that tone needs to be set by the Board and the CEO.
2. Risk management oversight.
While the CEO and the management team are responsible for identifying the most significant risks to the enterprise, the board has a responsibility to ensure all major enterprise risks are identified, prioritized and mitigated or at least managed with clear, concise and actionable plans. In my experience, the best companies devote at least one board meeting every year to a thorough review of risk management.
3. Strategy oversight.
Strategy and its execution is, first and foremost, the primary responsibility of the CEO. She/he must enable the reliable delivery of business and financial results. Having said that, the directors should focus considerable thinking, energy and time on company strategy.
This can be challenging. I’ve watched boards fail to step in and ask the hard questions and fail to recognize when the company and/or CEO was clearly struggling and not delivering expected results. I’ve also watched boards push for significant changes when strategies are working well, and there is no real reason to change.
Working together, CEOs and their boards must continuously sharpen the current strategy, while also being ready to adapt, evolve, or significantly change strategy - especially in a VUCA world with ever-shifting customer needs and rising customer expectations, new and more formidable competition, and powerful external forces outside the company’s control.
4. Selecting the CEO.
Selecting, assessing and managing the CEO and their succession may be the most important and most difficult responsibility of the board. Entire books have been written on the subject of CEO succession. (Note: If you haven’t already, make sure to read this article on The Art and Science of Finding the Right Strategy).
There is obvious room for improvement. According to Equilar, the median tenure for CEOs at large S&P 500 companies was 5.0 years at the end of 2017, down from 6.0 years in 2013. No other decision tests the strategic understanding and personal judgment of individual board members more than the CEO selection or succession decision.
At the end of the day, defining the roles and describing the work of the the board is relatively easy. The hard part is playing the position, and not being tempted to take on the responsibilities or do the work of management… and then doing your job as a director well. It takes effort, energy and a significant time investment to understand the industry, the company, and the key strategy, risk and governance issues facing the CEO and leadership. And, it takes even more judgment to navigate them.