This article focuses on the roles and responsibilities of the Board of Directors and Board Committees where we aim to shed some light on the practices of the Board to assist the Board to create policies and practices which support the implementation of Corporate Governance. In addition to assisting the Board this article should assist non-board members to understand the roles and responsibilities of the Board in relation to Corporate Governance which will assist a wider audience of people to understand the responsibilities of the Board.
We hope this articles will create more clarity on what is expected from the Board and its Committees in implementation of Corporate Governance policies and practices within the organisation and across the value chain of the related parties.
The Board of Directors is operationally responsible for the leadership of the company and supporting the head of the organisation to develop and implement the strategy of the organisation. With this in mind the Board carries a heavy burden to ensure the management of the organisation implement the agreed strategies to protect shareholder value. As the Board are no actively involved in the day to day operations of the business they rely on the information produced by the management, internal auditors, external auditors to give them insight into the health of the organisation.
The Board of Directors usually is made up of 3, 5, 7 or 9 (can be more) individuals who have a number of common and diverse responsibilities which can be summarized into the overall oversight of the organisation. Each member of the Board or the Board Committee should have the required educational, experience or knowledge to assist the organisation, this can mean the competency of the Board for a Bank is significantly different to a Real Estate Developer or a FMCG or a Retail or a Small Financial Services Business or an Insurance Business.
The main difference between a large business and a Small to Medium Enterprises (SME) with respect to Corporate Governance is not in the requirements but in the number of resources available to assist in design and implementation of the requirements. On the other hand where the founders/shareholders are actively involved in the business or on the Board they can assist in the creation of the desired outcome more proactively.
Each Board member has different strengths and knowledge which should be utilized to support the business in there are of speciality.
The Board of Director Responsibilities include;
- Guide the strategic direction of the business and protect shareholder value.
- Ensure the preparation of a detailed Strategy for a suitable time period (e.g. revenue/profitability 3- 5 years, asset management 5 -7 years, Property and Machinery 5 – 10 years, government and infrastructure 10 – 20 years) which has been cascaded to all levels within the organisation to create operational KPI’s and plans.
- Review, challenge and approval of the strategy. review progress against the strategy and challenge any deviations or shortfalls.
Insist on the creation of a Corporate Governance Manual, Corporate Governance Policy, Whistle-blower Policy, Related Parties Policy, Code of - Conduct, Delegation of Authority Matrix/Policy, Gift Policy and Terms of Reference (Charter) of the Committees.
- Work with Shareholders to ensure suitably experiences and qualified individuals are appointed to the Board including business experts, audit or finance experts, industry experts (Banking, FMCG, Insurance, Real Estate) and functional experts as needed e.g. supply chain, financial services and banking.
- Ensure the business is run by policy and procedures to ensure all practices are designed, communicated and controlled in the manner expected. Challenge practices within the business which do not meet the policies and procedures.
- Decision marking on strategic activities in line with the detailed Board approved Delegation of Authority Matrix.
- Ensure all processes and restrictions outlined in the Related Parties Policy are implemented and documents to ensure fairness of all decision making.
The Board Executive Committee Role and Responsibilities include;
- Review operational business performance in more detail than the Board working with the CEO and CFO to ensure all management reports are prepared, evaluated and reported on time ensuring a true reflection of the business.
- Challenge the performance of the organisation against the approved strategy including insisting on the preparation and implementation of remedial action.
- Review and approve any major projects, initiatives or activities presented by the Management Team prior to submission to the Board for final approval.
The Board Audit Committee Role and Responsibilities include;
- Appointment and supervision of the Internal Audit Function within the business.
- Approval of all Audit Schedules and Risk Assessments conducted by the Internal Audit Function.
- Support the Internal Audit Function in the event of lack of improvement by the Management where the Internal Audit Function has been unable to resolve the situation satisfactorily.
- Review and approve Internal Audit Reports, Corporate Governance Manuals and associated documents prior to submission to the Board for approval.
The Board Risk Committee Role and Responsibilities include;
- Review, challenge and approve the Risk Appetite as presented by the Management or Enterprise Risk Management Function.
- Review and challenge the risk register, business continuity plan and mitigation actions being presented by the Management.
- Insist on remedial action needed to protect the organisation from identified un-controlled or un-acceptable risk levels.
The Board Remuneration Committee Role and Responsibilities include;
- Review, challenge and approve the organisations remuneration strategy documents including Grading Structure, Competency Framework and Compensation & Benefits Policy.
- Review, challenge and approve incentive schemes (bonus, commissions, share options) for Senior Management, overall business increments and incentive strategies as presented by the Management.
The Board Nomination Committee Role and Responsibilities include;
- Review the nominations to the Board and Board Committees to ensure the outlined processes are followed for all nominations.
- Conduct suitable due diligence assessments of all nominations to the Board to determine any material barriers to representing the organisation.
- Review all nominations of appointments to the positions of Senior Management and where appropriate present the candidates to the Board.
The Board Credit Committee (normally in Banking) Role and Responsibilities include;
- Oversight of all credit related strategies and approving of credit as per the Delegation of Authority Matrix.
- Review and approval of the Credit Polices to be applied across the organisation.
The Medical Committee (normally within hospitals/clinics) Role and Responsibilities include;
- Review and approval of the medical practices, standards and systems to be applied within the healthcare service provider.
- Review any breach of codes of practice or malpractice and take steps to mitigate any losses and take disciplinary action.
In the event the Board decide not to appoint separate Board Committees the Board should ensure all roles and responsibilities performed by the respective committee are absorbed into the Board roles and responsibilities.
Regardless of the size of complexity of your business it is good practice to have a Board of Directors in place to assist the Senior Management to efficiently drive the strategy of the business. It is also good practice to appoint an independent Board member to a SME who is not part of the management team or shareholders to balance any bias by the owners or management team.
The Board of Directors hold a duty of care to the organisation who they have committed to support which includes active participation in the business, attendance at all Board meetings, challenging decisions with the best interest of the business in mind, representing the organisation in public to promote achievement of business objectives/strategies and to mentor/lead the Senior Management.
We hope this articles has provided you with a little insight into the roles and responsibility or the Board and hope to see more organisations implement Corporate Governance structures leading to stronger, faster and more productive organisation which will ensure the success of local and international economies in the future.