How To Create An Effective Board of Directors

Having a board of directors could be the key to future success in your company. The board’s primary role is to provide entrepreneurial leadership of the company within a framework of quantified and effective controls, which enables risk to be assessed and managed. The most effective boards develop and promote its collective vision of the company’s purpose, mission, its culture, its values and the behaviors that it wishes to promote in conducting its business.

In particular, its primary roles are to:

1. • provide direction for management
   • demonstrate ethical leadership, displaying – and promoting throughout the company – behaviors consistent with the culture and values it has defined for the organization
   • create a performance culture that drives value creation without exposing the company to excessive risk
   • make well‐informed and high‐quality decisions based on a clear line of sight into the business
   • create the right framework for helping directors meet their statutory duties under the relevant statutory and regulatory regimes
   • hold accountable, particularly to those that provide the company’s capital
   • think carefully about its governance arrangements and embraces evaluation of their effectiveness.

An effective board should not necessarily be a comfortable place. Challenge, as well as teamwork, is an essential feature. Diversity in board composition is also an important driver of a board’s effectiveness, creating a breadth of perspective among directors, and creates a tendency towards ‘group think’.

The Role of the Chairman

Good chairmen create good boards. The chairman creates the conditions for overall board and individual director effectiveness. He/She should also demonstrate the highest standards of integrity and probity, and set clear expectations concerning the company’s culture, values and behaviors, and the style and tone of board discussions. The chairman, with the help of the executive directors and possibly the company secretary, sets the agenda for the board’s deliberations.

The chairman’s role includes:

1. • demonstrating ethical leadership
   • setting a board agenda which is primarily focused on strategy, performance, value creation, accountability, and ensuring that issues relevant to these areas are reserved for board decision
   • ensuring a timely flow of high‐quality supporting information
   • making certain that the board determines the nature and extent of the significant risks the company is willing to embrace in the implementation of its strategy, and that there are no “no-go” areas which prevent directors from operating effective oversight in this area
   • regularly considering succession planning and the composition of the board
   • making certain that the board has effective decision‐making processes and applies sufficient challenge to major proposals
   • ensuring the board’s committees are properly structured with appropriate terms of reference
   • encouraging all board members to engage in board and committee meetings by drawing on their skills, experience, knowledge and, where appropriate, independence
   • fostering relationships founded on mutual respect and open communication – both in and outside the boardroom – between the non‐executive directors and the executive team
   • developing productive working relationships with all executive directors, and the CEO in particular
   • providing support and advice while respecting the executive responsibility
   • consulting the senior independent director on board matters in accordance with the Code
   • taking the lead on issues of director development, including through induction programs for new directors and regular reviews with all directors
   • acting on the results of board evaluation
   • being aware of, and responding to, his or her own development needs, including people and other skills, especially when taking on the role for the first time
   • ensuring effective communication with shareholders and other stakeholders and, in particular, that all directors are made aware of the views of those who provide the company’s capital.

Creating an effective board is often one of the key components for successful and sustainable growth; the wrong setup could be a major contributor to failure. If you should have any qeustions in regards to what you read please drop me note and if there’s a topic you would like to me to discuss in future, please let me know!