The Board is one of the most important structures in modern business. Gone are the days when Boards were mysterious, opaque institutions with little exposure to the outside world. A combination of economic turbulence, rising concern over corporate governance and recognition that businesses need to gain value from their most senior appointees has put boards in the spotlight. So, what are the key roles of today’s Boards, Board Chairs and Non-Executive Directors?
What is the Role of the Board?
The Institute of Directors summarises the role of the Board as “to ensure the company’s prosperity by collectively directing the company’s affairs while meeting the appropriate interests of its shareholders and relevant stakeholders.” This high-level description signals the enormous scope and impact that Board responsibilities entail – going far beyond oversight – and explains why a high-performing board is of huge benefit to a business, while a dysfunctional board is a significant risk.
Board duties range from high-level strategic planning and consultation to more practical aspects, such as setting the remuneration of senior-level executives. Different functions are often delegated to specific committees and most Boards have audit, nomination and remuneration committees. Dependent on the business sector, Boards may also have advisory committees on relevant issues such as technology or ethics.
At all times, boards must be mindful not to cross the barrier from strategic into operational activities. The CEO and the management team are responsible for the daily running of the company – the board should not involve itself in operational minutiae. Instead, the Board should focus on the long-term future of the business, using its perspective to look beyond short-term profit statements to build a strategy for sustainable success. Key activities include:
- Setting the company’s vision, mission and values
The Board is responsible for setting the company’s vision, mission and the values it will adopt to achieve its objectives. Once established, the Board plays an essential role in ensuring that the company’s values become ingrained in its corporate culture and embraced by its leaders. Directors must lead from the top by embodying those values in their work with the organisation.
What is the size and scale of the challenge that companies face in building a balanced board?
As Chair of the Financial Reporting Council (FRC) Sir Win Bischoff puts it: “The strategy to achieve a company’s purpose should reflect the values and culture of the company and should not be developed in isolation. Boards should oversee both.”
The UK Corporate Governance Code asks Boards to assess and monitor corporate culture, identifying areas where policies and procedures do not align with company values and oversee corrective action by management. The Board is also expected to engage with stakeholders, including investors, employees and wider societal groups impacted by the company’s operations, to maintain a productive relationship.
- Strategy, financial and risk monitoring
The Board is responsible for overseeing corporate strategy, authorising business plans, setting financial objectives and ensuring that the business has the resources, structures and governance in place to pursue those plans with proper regard for regulatory and compliance issues.
The Board is also instrumental in determining the organisation’s risk posture by evaluating the impact of external and internal risk. This is a critical activity in today’s dynamic climate, where disruptive technologies, shifts in consumer expectations and regulatory changes are common.
- Senior executive selection, evaluation and compensation
One of the most important roles of the Board is selecting senior executives to manage the business, agreeing on the level of remuneration and subsequently monitoring their performance. The Board is expected to achieve this by providing robust challenges to management to ensure that the company is run effectively.
Boards are also required to evaluate their own performance by carrying out regular board evaluation. In the case of listed companies, this must be carried out by a third party at least every three years. Linked to this is the Board’s responsibility to ensure a strong line of director success, assessing the composition of the board to ensure it has the expertise it needs as the environment in which it operates changes.
The Role of the Board Chair
Crucial to the Board’s success in performing its duties is the Board Chair. The Chair provides leadership to directors, determining the focus of Board activities and ensuring that the Board operates effectively. The Chair plays an essential role in establishing a positive Board culture that reflects the values of the business.
The Chair must ensure that the Board operates in an open and transparent way, putting the foundation in place for open and constructive discussion and challenge. They must be able to manage different personality types and be skilled at resolving conflict. They must also be capable of analysing large amounts of wide-ranging information received through Board materials and during Board meetings and distilling the logical course of action to follow.
This report indicates the advantages companies can gain by practicing modern governance: empowering leaders with technology, insights, and processes to fuel good governance.
Communication is an essential skill for the Board Chair. They must work closely with the company CEO and the Company Secretary to ensure that directors receive all the information they need to make informed decisions. In meetings, they need to direct discussions and ensure that decisions are based on sound evidence and debate.
From an external communications perspective, the Board Chair is often the company figurehead in times of crisis, so appointing a skilled communicator who has experience in managing the media can be a shrewd move.
Skills and Experience: the Role of Non-Executive Directors
In contrast to Executive Directors, Non-Executive Directors (NEDs) have no direct management responsibilities in the organisations they serve. They are often seen as a balancing force within a Board and a key part of their role is to challenge the thinking of Executive Directors, who are more closely embedded within the business. NEDs are sometimes described as being a “critical friend” to the business and may perform mentoring functions for executive directors to help them develop desirable skills and attributes.
NEDs are usually chosen on the basis of the wider skills and expertise they offer the business. In the past, this often focused on financial experience, but, while this remains an important element of Board activities, its scope is now far broader. Risks and opportunities now stem from a much more diverse range of sources.
Today’s NEDs may be experts in cybersecurity, AI, machine learning and industry 4.0 technologies; others have first-hand experience in digital transformation, organisational design, customer insight or social communication. These are all major preoccupations for modern businesses, and they are appointing NEDs accordingly. A recent EY survey found that 82% of Boards expected to add positions or change roles, with CEOs seeing the top five capabilities critical to their company’s continued growth as: digital transformation (55%); innovation (53%); artificial intelligence (43%); data science (33%); and behavioural science (25%). NEDs provide independent perspective and cross-sector intelligence that helps them see risks and opportunities that may not be obvious to those closer to the business.
Business success relies on strong, functional relationships between the Chair, Executive Directors and NEDs. In discharging their respective roles, the Chair, NEDs and the Board as a whole must combine to deliver sustainable business growth for the benefit of shareholders and wider stakeholders.
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