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What do boards do?
May, 08th 2008

There can be no dispute that the single overarching responsibility of all boards is to build an effective organisation. This happens through eight principal functions that boards perform, says William G. Bowen in The Board Book ( ).

The first of these functions is to select, encourage, advise, evaluate, compensate, and, if need be, replace the CEO. A sometimes underappreciated (and less understood) function of boards is to give informal advice to the CEO or president outside of board meetings, Bowen observes.

Of course, CEOs must be receptive to advice if it is to have value, and often those who need advice the most are the most reluctant to accept it.

The second function is to discuss, review, and approve strategic directions, by constantly questioning basic assumptions and priorities. Boards have an obligation to take a long-term view and to resist any tendency to place excessive emphasis on short-term considerations, whether quarterly earnings or an unexpected shortfall in donations.

When performing this function, guard against the danger of confusing participation in the direction-setting process with actual policy making, the author cautions. Because, policies need to be formulated thoughtfully, over time, through the sustained attention of full-time officers and competent staff, he advises.

The third function is to monitor performance, by regularly reviewing the progress of management in achieving agreed-on goals. The real danger when reviewing, says Bowen, is to parse out small variations in outcomes from quarter to quarter instead of focusing on broader trends and emerging challenges.

The fourth in the list of board functions is to ensure that the organisation operates responsibly as well as effectively. Encourage the establishment of the appropriate tone at the top, and ensure the adequacy of policies and procedures for compliance with legal and ethical standards, the author urges.

Proper discharge of this important responsibility includes protecting the organisation against conflicts of interest and being sure that proper controls are in place to monitor the expenses and the exercise of perquisites by management.

Task five, act on specific policy recommendations and mobilise support for decisions taken. In both for-profit and non-profit contexts, votes by boards on major policy issues serve the function of legitimising decisions and giving them a degree of finality so that the organisation can get on with its business.

Sixth, provide a buffer for the president or CEO; that is, take some of the heat, especially when a noisy constituency demands to be placated. For instance, In some situations, presidents may need to promise individuals doctors on a hospital staff, faculty members in a university, or prospective donors to museums that a matter will be presented to the board for consideration, even if the president has quite a clear sense of the likely (negative) outcome.

The penultimate function in the list is to ensure that the necessary resources, both human and financial, will be available to pursue the organisations strategies and achieve its objectives.

Bowen underlines the need for board members to be visible at ceremonial events and large-scale managerial meetings, and also to assist the CEO in motivating and encouraging members of the management team by paying respectful attention in formal meetings when officers other than the CEO make presentations and by getting to know these other officers in informal settings.

And, finally, nominate suitable candidates for election to the board, and establish and carry out an effective system of governance at the board level, Bowen counsels. A sometimes unpleasant but necessary duty is to orchestrate the removal from the board of a director or trustee who needs to be replaced.

Prescribed read.


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