Written September, 2009
the role of the board of directors to hire the CEO and assess the overall direction and strategy of the business. The CEO is responsible for hiring all of the other employees and overseeing the day-to-day operation of the business. Problems usually arise when these guidelines are not followed. Conflict occurs when the directors begin to meddle in the day-to-day operation of the business. Conversely, management is not responsible for the overall policy decisions of the business.
The seven points below outline the major responsibilities of the board of directors.
1) Recruit, supervise, retain, evaluate and compensate the manager. Recruiting, supervising, retaining, evaluating and compensating the CEO or general manager are probably the most important functions of the board of directors. Value-added business boards need to aggressively search for the best possible candidate for this position. Actively searching within your industry can lead to the identification of very capable people. Don’t fall into the trap of hiring someone to manage the business because he/she is out of work and needs a job. Another major error of value-added businesses is under-compensating the manager. Managerial compensation can provide a good financial payoff in terms of attracting top candidates who will bring financial success to the value-added business.
4) Govern the organization and the relationship with the CEO. Another responsibility of the board is to develop a governance system. The governance system involves how the board interacts with the general manager or CEO. Periodically the board interacts with the CEO during meetings of the board of directors.
5) Fiduciary duty to protect the organization’s assets and member’s investment. The board has a fiduciary responsibility to represent and protect the member’s/investor’s interest in the company. So the board has to make sure the assets of the company are kept in good order. This includes the company’s plant, equipment and facilities, including the human capital (people who work for the company.)
1. Effective board leadership
The effective functioning of a board depends on a number of factors, including the mix of knowledge and experience among the directors, the quality of information they receive and their ability to operate as a team. The chairman’s role (or that of the lead director on many U.S. boards) is pivotal in managing the group dynamic, playing to the board’s strengths and maintaining regular contact with directors between meetings. High-functioning boards rotate meetings around company locations, simultaneously educating directors about different aspects of the business and giving them access to key executives. Directors are invited to attend all committee meetings and are free to ask questions, however difficult. Boards not only evaluate the performance of the CEO, but take the formal assessment of their own work seriously and use the findings to develop — and hold themselves to — objectives for improvement. Transparency and trust prevail.
As businesses reinvent themselves, so should boards....