The necessary conditions for the effective development of modern organizations and joint-stock companies in the long term are an effective board of directors and a well-thought-out management system. This article will consider the core responsibilities of the boards that they usually overlook.
How the board of directors impacts the success of the company?
There are many reasons why companies succeed. Sometimes it’s because the board of directors found very good top managers; sometimes, it’s a technological advantage; sometimes, it’s the perfect timing for a particular product. Similarly, there are many reasons why companies fail. Sometimes this is caused by external circumstances that the board of directors members did not foresee and could not control. Sometimes the reason is that consultants let the board down or there were frauds that the directors did not know about. Often, they do not always insist on developing effective strategies and smart steps that increase shareholder value and do not always participate in this process. Unfortunately, this often happens because the board of directors does not effectively monitor the work of top management. As a result, the owners of the enterprise incur losses. Lastly, the board monitors the company so poorly that the shareholders lose their entire investment.
Boards of directors often include the community’s most talented and capable members who have proven their talents in various activities. Moreover, the tasks to be performed by directors are not only well known but, under normal circumstances, are not particularly onerous. At the same time, directors have plenty of incentives to be successful. Naturally, no one sits on the board to lead companies to failure, nor does he agree to participate in it if the prospect of failure is very likely. Quite the opposite: board members are hired to help lead the enterprise to success.
What obligations do the boards usually underestimate?
So, let’s consider the main responsibilities the board usually overlooks. They are as follows:
- Ensuring proper information exchange
The boards of directors have a fiduciary duty to make decisions after considering all relevant information reasonably available. A well-designed board information system helps create and maintain a healthy relationship between the board and management. Communication materials should be summarized and formatted to enable board members to effortlessly capture the essence and focus on the most important issues in preparation for the board meeting. Therefore, many businesses have already implemented board portal solutions into their daily activity to arrange paperless online meetings, easy collaboration, and data sharing. Following https://boardroommind.com/board-portal-pricing-comparison/, the most popular solutions are Boardable, Diligent, iDeals, Naddaq, etc. But there are still enough boards of directors who are in no hurry to change the format of their activities.
- Communication with investors
Some boards of directors avoid such events: they say this is managers’ business. But investors are an independent source of information. Moreover, communication with large shareholders helps to find out who among them is interested in long-term cooperation and who is ready to support activists who are knocking out a quick income for themselves – and also allows you to build alliances.
The traditional role of the board of directors in a public company is to oversee and control. It is prescribed in the requirements for entering the stock exchange and the corporate governance code. But the world has become more complex, and one oversight function is no longer enough. We need two more: an additional source of expertise and a constructive opponent for management. In this regard, the most effective board of directors should include people not only with different competencies but also with different types.