The document discusses the role and responsibilities of boards. It covers what a board is, its key duties like providing oversight and appointing executives. It discusses board structure and composition, as well as the duties and potential liabilities of individual directors. The document provides guidance on how boards can work effectively through collective responsibility, strategic thinking, and building trust. It offers tips for individuals to be effective board members through leadership, understanding all aspects of the business, and constructive compromise.
2. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
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3. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
3
4. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
3
5. What is a board
• The Board ≡ Board of Governors, Board of Trustees,
Board of Regents …
• Usually roles and duties defined by external authority
- Bylaws
• Members chosen by:
‣ Stockholders
‣ By the members, or their delegation
‣ Sometimes by the board itself
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6. What is a board
• Oversimplified, but a common approach:
‣ The “Company”, “Shareholders General Meeting” &
“Board of Directors” are 3 distinct entities
‣ Who has what powers is defined in a set of articles
‣ Power to manage company vested in the board of
directors alone
‣ Only way for shareholders to control company is by
varying the articles or refusing to re-elect directors
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7. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
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8. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
6
9. The duties of a board
• These differ greatly between different organisations
• A group legally charged with the
responsibility to govern an organisation
‣ For-profit : responsible to shareholders, or
more radical, responsible to stakeholders
‣ Non-profit : responsible to members or
some objective
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10. The duties of a board
• Provide continuity for the organisation
‣ Creating a corporation or legal existence
‣ Represent the organisation
• Appoint & review a CEO
‣ Delegate responsibility for administration of the
organisation to them
‣ Review, offer guidance or dismiss the CEO
8 Brenda Hanlon, in In Boards We Trust
11. The duties of a board
• Govern by setting broad policies, objectives & priorities
‣ Ensure chief executive and employees agree
‣ Undertake regular reviews
• Acquire sufficient resources & finance for organisation
• Provide, to the stockholders or public:
‣ Fiscal accountability, approve the budget, and formulate policies related
to contracts
‣ Responsibility for all conditions and policies attached to products &
services
• Appoint a suitably qualified company secretary (not now necessary for
privately owned UK companies)
9 Brenda Hanlon, in In Boards We Trust
12. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
10
13. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
10
14. The structure of a board
• Chairperson
• Directors
‣ Employee, officer, major shareholder, representative of other
stakeholders (Unions) ...
• Non-executive Directors
‣ Only serves on the board & has no other involvement in
organisation
• The composition of the board is controlled by law in many countries
• Strongly suggest you consider using non-executive directors from
early in a start-up
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15. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
12
16. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
12
17. Directors duties
• Individual directors duties are defined in law
‣ The UK, Companies Act 2006
‣ Directors have a personal duty to deliver accounts,
annual returns and notices of changes to Companies
House
‣ £5,000 fine for the director & the company will be
punished as well
‣ Please take legal advice
‣ http://www.companieshouse.gov.uk/about/pdf/gba1.pdf
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18. Who can not be a director
• An ‘artificial person’
• A disqualified person:
‣ Did not keep appropriate accounting records
‣ Did not met their obligations to Companies House
‣ Failed to pay taxes which the company owes and/
or failed to submit the appropriate returns
• An undischarged bankrupt
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19. Directors duties
‣ Must act honestly, in good faith and for proper purpose
‣ Need to be able to prove that at all times they have
considered the interests of the company
‣ Unfettered discretion, the directors cannot bind themselves
to vote in a particular way in the future - the company can enter
into contracts but not the directors
‣ No conflict of duty and interests, although in some
countries this can be overridden by the company
‣ Must not, without consent, use corporate property, opportunity, or
information for their own direct gain
‣ Common law duties of care and skill
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20. Guidance for directors
‣ Act in the company's best interests, taking everything you think relevant into
account
‣ Obey the company’s constitution and decisions taken under it
‣ Be honest, and remember that the company's property belongs to it and not to
you or to its shareholders
‣ Be diligent, careful and well informed about the company's affairs. If you have any
special skills or experience, use them
‣ Make sure the company keeps records of your decisions
‣ Remember that you remain responsible for the work you give to others
‣ Avoid situations where your interests conflict with those of the company -
when in doubt disclose potential conflicts quickly
‣ Seek external advice where necessary, particularly if the company is in financial
difficulty http://www.bis.gov.uk/files/file40139.pdf
http://www.companieshouse.gov.uk/about/pdf/gba1.pdf
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21. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
17
22. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
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23. Your Exposure
• Legal
‣ Compliance and good governance
‣ Criminal charges - The capsize of The Herald of
Free Enterprise, Paddington/Hatfield train crashes
‣ Corporate manslaughter convictions may become
a possibility
‣ "I was just following the rules, don't blame me"
does not work well in the Boardroom!
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24. Your Exposure
• Financial
‣ Can easily end in court
‣ Limited liability is essentially a shareholder protection
‣ Will not protect directors from litigation for damages
‣ Indemnities in service contracts vital - to limit
corporate failure
‣ Nothing to protect directors from fraud or trading
when illiquid
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25. Your Exposure
• Personal
‣ Reputation is on the line, failure can have a very
high cost
‣ Reputation is a very powerful tool in boardroom,
difficult to repair
‣ It’s safest to assume accountability for directors is
TOTAL and there are no hiding places!
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26. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
21
27. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
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28. How an effective board works
• As a collective
‣ Objectivity and Independence, a personal
requirement
‣ Fidelity and accountability, a collective
responsibility
‣ Reconciling this can be very hard!
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29. How an effective board works
• Accept the concept of TOTAL accountability, this has critical
implications for directors behaviour:
‣ Willingness to resign immediately without compensation on
matters of performance/principle
• Present views of board, even if not personal views
• Accept responsibility for actions of organisation, even if you
had no direct involvement
‣ Executives can punish subordinates for failure
‣ Directors must accept the responsibility for failing to create
an environment that delivers success
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30. How an effective board works
• To take a strategic perspective
‣ Positioning organisation for future advantage
‣ Deep understanding of both internal and external
affairs
‣ Usually strategic issues require resolving issues
outside the direct control of the organisation for
which you may have little direct influence
‣ …
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31. How an effective board works
• To take a strategic perspective (cont.)
‣ Establishing options
‣ Understanding impact of predictable and surprise
events - what-if, best/worst case
‣ Strategic concepts do not always have a tangible
output - but can be critical
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32. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
26
33. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
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34. Trust and creating a corporate culture : 1
• Boardmember required to make independent
contribution based on; honesty, objectivity and best
judgement - in a framework of collective
responsibility
• This needs a bond of trust
• Trust is the result of a consistent, natural and
constant pattern of ethical behaviour in the
boardroom …
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35. Trust and creating a corporate culture : 2
• Ethical behaviour
‣ is the result of adopting a value system which is
honest and legal
‣ It has to override short term opportunism
• This value system is the basis for the corporate
culture - vital and a major contribution to the
organisation’s success …
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36. Trust and creating a corporate culture : 3
• This value system is the basis for the corporate
culture - vital and a major contribution to the
organisation’s success
• Corporate culture is formed in the
boardroom
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37. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
30
38. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
30
39. How to be an effective director
• Leadership
• Guide by persuasion
• Articulate an argument for action - so compelling
others will see its merits and be prepared to act on
it
• Leadership is abdicated when authority is used
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40. How to be an effective director
• Overcome tendency to assume primary role is to
represent best interests of their function on board
• Vital to become familiar with all aspects of of the
business
• Perusing narrow agenda on board is a major source
of conflict and ineffectiveness
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41. How to be an effective director
• Trusteeship
‣ Active role looking after a portfolio of responsibilities
‣ Not an executive role
‣ It does not infer authority - not like any retained executive
responsibilities
• Stewardship
‣ Serve the best interests of organisation at all times and pass it on in
better shape than when inherited
• Stewardship = Trusteeship in non-profit, much more demanding
‣ Henry Kissinger: "the politics in academia are much more vicious, as the
stakes are so low"
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42. How to be an effective director
• Constructive compromise
• Ideally surprise events should hit the boardroom
first
‣ The role of the board is to understand
uncertainties
‣ Resolve ambiguities
‣ Balance conflicting issues
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43. How to be an effective director
• Evidence
‣ Very hard to acquire
‣ Months of analysis can result in nothing more than an
understanding of the weaknesses of the team who
undertook the collection
‣ Hearsay is dangerous!
• Loyalties will be tested in a boardroom
• Uncertainty is managed in a boardroom
• Drawing valid conclusions separates the wise from the fools
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44. How to be an effective director
• Conflict of interest demands recognition and resolution
• Compromise
‣ Well researched, factual & transparent
‣ Constructive compromise is the primary tool
‣ Agreed action is the output
‣ Only changed by new information/evidence
‣ Compromise is susceptible to conscious and
unconscious abuse
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46. The Role of the Board
1. What is a board
2. What are its duties
3. The Board structure
4. Your duties as a director
5. Your exposure as a director
6. How an effective board works
7. Trust and creating a corporate culture
8. How to be an effective board member
9. How to transition from Executive to Director
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47. Challenges of New Board Membership
• No shallow end to practise in
• Behaviour more important than technical
competence
• Authority comes from sound judgement and wining
influence, not status
Scanlon, S. & Schneider, S. (2011). The Board Game, London: LID Publishing Ltd.
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48. From Executive to Director
• How you maintain authority
‣ from your position Executive
‣ from your resources
‣ from your reputation & respect Director
‣ from your objectives
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49. From Executive to Director
• How you maintain authority
‣ from your position Executive
‣ from your resources
‣ from your reputation & respect Director
‣ from your objectives
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50. From Executive to Director
• Your responsibility
‣ Is to the Board Executive
‣ Is to the Shareholders Director
‣ Is to the Stakeholders/Members
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51. From Executive to Director
• Your responsibility
‣ Is to the Board Executive
‣ Is to the Shareholders Director
‣ Is to the Stakeholders/Members
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52. From Executive to Director
• You have the power to:
‣ Command Executive
‣ Influence Director
‣ Represent
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53. From Executive to Director
• You have the power to:
‣ Command Executive
‣ Influence Director
‣ Represent
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54. From Executive to Director
• Your position:
‣ as a Senior Executive Executive
‣ With extensive support
‣ Always answerable
‣ as a New-Kid-on-The-Block Director
‣ With minimal support structure
‣ Always responsible
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55. From Executive to Director
• Your position:
‣ as a Senior Executive Executive
‣ With extensive support
‣ Always answerable
‣ as a New-Kid-on-The-Block Director
‣ With minimal support structure
‣ Always responsible
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56. From Executive to Director
• Your primary skills are:
‣ to be decisive Executive
‣ using analysis
‣ to exercise judgement Director
‣ using argument
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57. From Executive to Director
• Your primary skills are:
‣ to be decisive Executive
‣ using analysis
‣ to exercise judgement Director
‣ using argument
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58. From Executive to Director
• Your focus is on:
‣ Task Executive
‣ Tactics & corrective actions
‣ Effective/Efficient resource deployment
‣ Role Director
‣ Strategy & preventative actions
‣ Stakeholder value
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59. From Executive to Director
• Your focus is on:
‣ Task Executive
‣ Tactics & corrective actions
‣ Effective/Efficient resource deployment
‣ Role Director
‣ Strategy & preventative actions
‣ Stakeholder value
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60. From Executive to Director
• Your style is:
‣ Interventionist & action oriented Executive
‣ Competitive
‣ more team oriented
‣ Reflective Director
‣ Collegiate
‣ more independent minded
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61. From Executive to Director
• Your style is:
‣ Interventionist & action oriented Executive
‣ Competitive
‣ more team oriented
‣ Reflective Director
‣ Collegiate
‣ more independent minded
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62. From Executive to Director
• The big challenges:
‣ failing to maintain confidence Executive
‣ becoming to politically motivated
‣ failing to suppress interference
‣ failing to convince Director
‣ retreating into functional comfort zone
‣ unwilling to be responsible for the actions of others
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63. From Executive to Director
• The big challenges:
‣ failing to maintain confidence Executive
‣ becoming to politically motivated
‣ failing to suppress interference
‣ failing to convince Director
‣ retreating into functional comfort zone
‣ unwilling to be responsible for the actions of others
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64. Why do it?
• Board membership is high risk - high reward
situation
• Good reasons to do it
‣ Desire to make a difference for the better
‣ Financial reward
‣ The unique political/intellectual challenge
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