On the Board? … then be on the ball!

The actions of Boards and Board members are becoming increasingly subject to both public and judicial scrutiny.  The string of collapsed finance companies, the “leaky building crisis” and it’s aftermath of litigation and the allegations of incompetence and conflict of interest swirling around some of the country’s Health Boards means that Board members must carefully consider the responsibilities that attach to their position. 

Governance and Management

A key to understanding the role of a Board and it’s members is the distinction between governance and management.  Whether your Board is for a large corporation or your local School Board of Trustees recognising the different but complementary roles of the Board and management is an important step to effective governance.  It is the role of the Board and it’s members to provide leadership, strategy and effective decision making, not day to day management.  The effective functioning of any entity requires the mutual trust and confidence of the Board and management.  Crucial to this relationship is having Board members that will provide an environment for management to do it’s job by doing their own.

Know the Founding Document

Board members need to be aware of and in tune with the founding document or charter from which they obtain their authority to act.  Whether that is the Constitution of a company, a Trust Deed for an incorporated body or by Statute or Regulation for a public body.  Board members need to be familiar with the objectives, rules and procedures that govern the operation of the Board.  Decisions made by a Board outside it’s charter or as a result of faulty procedure are open to challenge.

Comply with the Law

Compliance with the law is also crucial.  This is because Directors and Trustees can be held personally liable for financial or legal decisions made by their Boards where the Board has not followed correct procedures in reaching those decisions.  There is a risk of being charged with negligence or fraud if an organisation fails to comply with the laws that apply to it.  It is particularly important that the Board (and it’s Chairperson) is vigilant in following good practice and observing the relevant rules and procedures so that when a Board makes a decision that has serious consequences it can be shown that the Board has acted correctly.  A good understanding of meeting procedures is also important.

Recognise when help is needed

Board members are not expected to “know it all”.  The Board does, however, need to be able to recognise when it needs professional advice or assistance to aid decision making.  Board members need to ensure that they have the relevant information and advice before making decisions and Board members have a positive duty to ensure that, as a Board, they are adequately informed. 

Representation

Board members must also be able to differentiate between their own interests or the interests of a particular group that may have elected or appointed them to the Board and the interests of the organisation as a whole.  This does not mean that Board members are not entitled to represent those interests or express opinions.  It does mean that Board members must not blindly promote a particular view point or interest where that is clearly incompatible with the objectives of the organisation as a whole.  Having said this, and while high profile cases are a reminder to be conscientious and wary, a Board that does not provide leadership and direction to an organisation is of equally poor value as a Board that acts capriciously.  Decisions made solely on the basis of minimising risk can result in a Board that is hamstrung and without clear direction.

The Chairperson

If the success of an organisation depends on it’s Board the successful functioning of the Board depends on an effective Chairperson.  The role of a Chairperson has it’s own special responsibilities.  The Chairperson (if necessary guided by a secretary or senior management) is expected to steer the Board through the reefs and shoals of rules and procedures so that where decisions are reached they are arrived at correctly!   

To what extent are Board members expected to exercise their professional expertise?  The answer is not straightforward.  Case law holds professional Board members to a higher standard than might otherwise be expected where the issue does involve their expertise gained by exercising a particular profession.  Board members (especially Chairpersons) who exercise a particular profession can therefore be expected to apply the expertise they possess for the benefit of the organisation they lead. 

Conflicts of Interest

Board members are expected to avoid or properly manage conflicts of interest as and when they arise.  It is important that conflicted Board members not only exercise care to ensure that other interests do not influence their decision making to the detriment of the organisation but also that they are seen to be avoiding such situations.  Board members with a personal interest in the outcome of a decision must disclose their conflict of interest and, usually remove themselves from the decision making process even if the decision is a “no brainer”. 

Payment

High expectations are more likely to arise where Board members are paid in recognition of the skills the Board members bring to the Board.  If the Chairperson is paid at a higher level then the expectations will be even higher still.  Paid, or unpaid, Board members are accountable for the decisions that they make and their performance is going to be measured according to the experience they have, the profession that they exercise and the judgement they have shown in the course of carrying out their role on the Board.  The risk of litigation, not to mention the potential for damage to reputation, should be enough for every Board member to insist that good governance is not compromised in making decisions of significance for any organisation that relies on the good judgement and expertise of it’s Board.