One of the most fundamental bodies within any organization is the board of directors. In this article, we take a look at some of the main board portal member duties and responsibilities. What does a board of directors do? Read on to find out.
The board of directors has been described as the “heart of a company”, and rightly so. A board not only points the company in the right direction but also makes major decisions that steer it through a strategic course to shape the company’s future.
But for a board to function effectively, each member must understand their role clearly. Board of directors positions are not empty titles — each must add some value to the collective decisions taken.
Board members and their roles
Broadly speaking, board members are charged with three overarching roles:
- Selecting the CEO – A key role of the board of directors is finding and appointing the company CEO, as well as dealing with CEO succession matters. Board members are also responsible for monitoring the CEO and, to a certain extent, providing a counterbalance and check to his or her actions.
- Providing directions – Not for nothing it’s called the board of directors: the board must establish a strategic vision and direction for the company, as well as making sure that company decisions and actions are followed in line with these values.
- Representing shareholders – The board is above all a fiduciary body, being entrusted with representing the interests of the company’s shareholders and other stakeholders, both financial and strategic.
How boards are organized
No two boards of directors are alike. For instance, a board might have as few as three members and as many as 30. That said, for the most part, boards will assign specific members to given key positions, such as:
Or, as some prefer, chairman or chairperson. This is the fundamental position in any board of directors. The chair structures the board and provides leadership. Some of their main functions are:
- planning and organizing board meetings
- working with the CEO to ensure company values and vision are aligned
- selecting potential new board members
- appointing committee chairs
- drafting agendas for board discussion and action
- ensuring the right information is available to the board
As the board leader, the chair is also supposed to deploy a series of “softer” skills. Among these are elements such as fostering an atmosphere of cooperation among members and helping each bring their best abilities to the table.
Finally, a good chair will also work to establish a net of powerful relationships with company stakeholders, ensuring everyone is invested in the company vision and goals.
More than just a replacement in case the chair is absent, the vice-chair (also known as chair-elect or vice-president) is tasked with assisting the chairperson in several key aspects of planning and communication. Among these, the vice-chair:
- helps the chair draft strategic agendas
- is available to communicate with stakeholders when necessary
- supports the chair during the preparation and execution of meetings
- works with the CEO to review long-term financial and strategic planning
The lead director
When the board chair is also the company’s CEO, a skewed power balance may occur. To help keep the CEO in check and evaluate their performance, a board may choose to elect an independent lead director. The lead director will take care of duties such as:
- acting as a mentor or supervisor to the CEO/Chairperson
- evaluating and providing feedback on the CEO’s performance to the board of directors
- participating in the recruitment of new board members
Besides these, a lead director may be assigned a variety of other duties as needed to relieve some of the responsibility and power that falls on the CEO/chair.
The board secretary
Although the position of secretary may be seen as a mere formality, it is nearly as important as the chair. In fact, while nonprofits may sometimes do without the role of a chair, the secretary is indispensable.
That’s because the board secretary ensures that clear and accurate records are kept for all board meetings and other important actions. As such, the secretary:
- takes meeting minutes, including member roll calls
- sends members reminders for meeting attendance
- keeps important records, such as contracts, declarations, and disclosures
- helps ensure compliance with company bylaws during meetings and other board procedures
The secretary may also be tasked with other informational issues such as ensuring member contact details are up-to-date, distributing approved copies of previous meeting minutes, and so on.
The treasurer’s primary duty is financial management and keeping members well-informed about all things financial. The treasurer roles include:
- providing financial reports, budgets, and plans
- leading fundraising operations
- keeping financial records
- advising the board on financial matters
It’s also worth noting that, under certain legislations (such as in California), the treasurer of a nonprofit organization without a CFO may be expected to take on the legal duties of Chief Financial Officer.
Board members and their responsibilities
The power to shape a company’s future comes with a corresponding level of responsibility. And while the specific tasks for attending to these duties vary, members’ responsibilities can be divided into three broad principles or fiduciary duties.
- Board members must put company interests before their own, acting in good faith and refraining from any misuse of company information for personal gain. That is the duty of loyalty.
- Board members are expected to advance company interests to the best of their ability and skill. Each member is to seek appropriate information and organize with other members for the company’s benefit. That is the duty of care.
- Members are to comply with company bylaws and act within the framework of the company’s views and ethical demands. That is the duty of obedience.
These responsibilities may not be strictly encoded in corporate law, but they provide the important groundwork for interpreting specific cases where directors are accused of misconduct. Board members can and often are held personally liable for their actions.
In fact, it is not unusual for shareholders, stakeholders, or other persons to raise charges of willful misconduct, recklessness, or gross negligence against board members or boards as a whole. Even nonprofit board positions may be liable to these and similar charges.
10 basic responsibilities of board members
Among the many particular duties of board of directors members, many are worth emphasizing. Here’s a list of 10:
- Establish the company vision, mission, and purpose. The board is responsible for establishing a framework of values and goals that provide guidance and inform company actions. This is often done through the drafting of a mission statement.
- Provide strategic planning. While the company vision is more of an aim and ethical compass, strategic planning provides a chart with the specifics of how to go about fulfilling those goals.
- Elect company officers. A board must assign not only the company executive, but also other critical roles such as the Chief Financial Officer, Chief Operating Officer, and Chief Marketing Officer.
- Select and train new board members. Board members must implement appropriate selection processes, choosing new members according to their unique abilities and capacity for contribution. They must also provide the requisite training so that newcomers understand what is expected of them and can effectively discharge their duties.
- Monitor and overview CEO actions. Boards serve as a counterbalance to the sometimes excessive concentration of a CEO’s power, acting to guide, monitor, and, if necessary, restrain the executive.
- Determine the governance structure of the company. This entails establishing a framework of company policies and bylaws to regulate specific actions and planning.
- Communicate with shareholders. This includes reporting dividends, in the case of public companies, or providing public accountability, in the case of non-profits.
- Oversee company affairs. The board should work to develop and further company products or services, as well as situate them in the broader context of the current market, main competitors, etc.
- Provide financial oversight. Tasks that fall under this category include the drafting and reviewing of budgets, fundraising, reviewing balance sheets, and forming the audit committee when necessary.
- Care for the company’s public image. Often, perceptions determine corporate success, and boards should work to create and maintain a positive image. That entails not only publicity campaigns and the publishing of company visions and goals but also things like the managing of inside dissension and conflicts of interest.
These are just some of the broader responsibilities. Others are also worth mentioning. For instance:
- Self-assessments. Periodically, boards have the duty to self-assess their performance with a view to improving board effectiveness and company success as a whole. For nonprofits, self-assessments are sometimes required by law.
- Compensation. Board members should deliberate and decide on appropriate executive pay.
- Time commitment. Members must be prepared to devote the necessary amount of time for effective meeting preparation and attendance.
- Committee participation. Most board members will also be expected to take part in one or more committees.
- Technology governance. To quote The Handbook of Board Governance, “Technology is now and will forever be a responsibility of the board.” Technology-minded board members harness the power of resources such as boardroom software while studying the potential impact of new tech such as 5G, blockchain, IoT, and AI.
- Digital transformation. The world of corporations has been going digital for decades. Additionally, remote work and virtual meetings have only increased because of the COVID-19 pandemic. As with any process rife with risks and opportunities, the responsibilities for effective digital transformation are laid at the boardroom’s door.
- Security concerns. Security of information, and especially, cybersecurity, are growing concerns. The cost of cybercrime ranges in the millions and billions, and is only set to rise. Security measures start with board decisions.
- Representation. Representation — particularly regarding gender diversity — has turned into a significant issue over the past couple of decades. In countries such as Belgium, France, and Germany, legislation establishes gender quotas for the boards of directors of public companies.
Just about any matter can also be made the responsibility of the board. If your company has a vision of sustainable corporate growth, for instance, the board may be required to investigate the impact of company products and services on climate change. Board members may need to provide a roadmap for environmentally-friendly corporate operations.
It’s important to note that there can be no complete list of board of director responsibilities. Each company will have its particular requirements, while corporate legislation will also vary in its demands according to geography, type of company, and field of activity.
As an example, nonprofit board of directors positions may differ significantly from the demands of for-profit, public companies.
Thus, if you are looking to better understand your responsibilities as a recently-elected board member, the first place to go is your company’s foundational charter and bylaws. It’s also a good idea to acquaint yourself with the main tenets of relevant corporate law in your area.
But if what you’re after is simply a generic overview of board of directors roles and responsibilities, the above sections provide a good general answer to the question “What does a board member do?”
Below you’ll find quick answers to some of the most common questions regarding board members and their duties.
What responsibilities do board members have?
As we saw above, board members have a varied range of responsibilities. Chief among them are:
- providing guidance to the company (broad goals, ethical values, a mission)
- selecting and monitoring the company executive and other officers
- overviewing company affairs as a whole, including production, market space, competition, etc.
- developing a strategic framework with key goals and milestones
- being accountable to stakeholders and fostering the public image of the company
- providing financial overview and planning: budgets, raising funds, earnings reports, balance sheets, and so on
- ensuring legal/ethical compliance in all company operations
- assessing board performance on a periodic basis
- establishing a framework for effective corporate governance
What are the three primary responsibilities of board members?
Specific responsibilities exist as a function of three overarching principles of duty. These are:
- The duty of loyalty. As a board member, your most important duty is to be loyal to the company as a whole. That means acting in good faith with the company’s best interests in mind, as well as being transparent in the event of conflicts of interest.
- The duty of care. To the best of your ability, you should endeavor to collaborate with other members with the goal of furthering company interests. The duty of care asks you to dedicate reasonable amounts of time and energy to company affairs. You should be proactive, well-informed, and cooperative.
- The duty of obedience. You are expected to be conversant with the company’s charter and bylaws, acting in such a way as to comply with relevant corporate policies and regulations.
Can one individual serve as secretary and treasurer?
Short answer: Yes.
As seen above, the roles played by the board’s secretary and by the treasurer are significantly different. While the secretary’s duty mostly relates to record-keeping and communication, the treasurer acts as a provider of financial information. Their roles rarely coincide.
For big corporations with large volumes of documentation and business, having the same person answer for the whole sum of these duties would be highly impractical.
For smaller corporations, though, it may be convenient to have the same individual discharge both functions, provided they are willing and capable to do so. In fact, there is nothing preventing the same superhuman from being chair, secretary, and treasurer at the same time!
Can board members be held personally liable?
If a board member is shown to have violated the duties of loyalty, care, or obedience, he or she can certainly be held liable.
In fact, board members will not uncommonly suffer lawsuits as a result of failure to comply with their duties. Under US corporate law, shareholder class actions, or lawsuits by company investors, can be brought against boards.
One instance when this can happen is if an action taken by the board negatively impacts the company’s shares. If the action can be proven to be the result of negligence or wrongful action by board members, they can certainly be held liable.
Usually, though, if it’s clear that board members acted transparently and in good faith, exerting a reasonable amount of skill and care, they will not be held liable.