So what does the board actually do? (part 2)

So what does the board actually do?

The Work of the Board

As mentioned in the last post we are often asked this question – many times by people who run successful businesses and who fail to see the value added by implementing a proper board structure, something they often see as a ‘necessary evil’!

This is the second part of a three-part series that aims to answer this question by addressing three pillars of governance that highlight the things that should be at the top of mind when a board sits to deliberate. These three pillars are;

  1. Establishing Policy
  2. Decision Making
  3. Exercising Oversight

(See last blog post: Pillar 1: Establish Policy)

Pillar 2: Decision Making

If the principle ‘tool’ of directors and the board is policy then one of the primary activities is decision making. It is also very interesting, and subtle, how internationally the liability in organisations has shifted away from action, what the company does, and now rests (almost) entirely on decision making. The implicit assumption is that there is no action that does not follow a decision. This is vital especially where actions are performed and decisions are made by separate people, as they are in business. In this context it is critical to hold the right people accountable and these people are those that make the decisions. The other thing that legislation internationally is doing is shifting the right to bring decision makers to account onto those impacted by the actions that followed the decisions of the decision makers.

It is vital that directors recognise this and ensure that their decision-making at board level is well-structured and thought through to withstand the rigours of this new environment. Three key characteristics of decision-making at board level are

  • The decisions at board level must be strategic. In the previous blog, we focused on policy making. The highest level of decisions in the company must be to establish appropriate, strategically aligned policy. Decisions that are made on an ongoing basis at board level must be consistent with this. When the strategy changes or adapts over time, as it will, the board needs to ensure that the policy framework also shifts as appropriate. The better the strategy and policy are aligned the more consistent decisions will become.
  • The decisions at board level must be significant. The biggest danger at board level, especially where the board composition is overweight operational people s for discussions and decisions to drift to less and less significant things. These may not be insignificant at the operational level but if they take up the time and attention of the board they dilute the value of the board’s deliberation on the things it should be focusing attention on.
  • Decisions throughout the company must be properly delegated. While a critical part of the board’s role is decision-making it is not true that ALL the decisions in the company must be made at board level (see my previous point). Again this is a trap that many business people, especially those who have founded and grown successful businesses fall into – they do not allow anyone else to make any decision. Another trap is to delegate the task or activity (or area of the business) without the authority to make the decisions necessary in completing the task of activity. This is a cause of de-motivation, distraction and often destructive behaviour since it undermines the one critical characteristic of a well-functioning business – the trust that must exist at all levels of a business for it to operate optimally. Responsibility to do the work MUST be accompanied by the right level of delegated authority which must be respected and held to account.

 

Pillar 1: Establishing Policy

Pillar 3: Excercise Oversight

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