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What you should know as a board member

The Board of Directors is the company’s supreme body and must play an active role in its management. The board must provide for prudent organisation of the company and ensure that plans, budgets and policies are determined for the operation of the business. Added to this is the more traditional role of the board as a controlling entity. A directorship comes with many obligations and responsibilities, and many of the board’s duties are explicitly regulated in law.

Serious potential consequences

In other words, being a board member brings with it a lot of responsibility. The decisions made at board level help shape the company’s future – possibly permanently. This makes it important for the company to have a good board in place, and for the board members to understand their responsibilities and obligations. And, not least, that they manage to take sound and appropriate decisions on this basis.

The Boeing 737 MAX crisis is a good example of the importance of boardroom decisions, including beyond the company itself. When Boeing’s board approved the plans for a new jet, the 737 MAX, they discussed the speed and cost of building it to compete on the market, but they failed to ask detailed questions about safety, according to the Washington Post.

Board member: The importance of taking the right decisions

It was reportedly only after the jet crashed into the Java Sea on 29 October 2018 that the board heard about the new software system that, in certain cases, forced the plane’s nose down, and ultimately caused the crash. In retrospect, it seems ASTONISHING that the board did not ask any questions about how the aircraft’s safety had been tested, but the fact is they did not. Their failure to scrutinise cost many lives.

This tragic incident highlights the issue of power and how much power and responsibility the board members have. It is exceedingly important to be thorough when making a decision on behalf of the company, and not least to ensure that you come to the right decision.

Among the tasks the board is responsible for are:

  • Administration of the company
  • Ensuring prudent organisation of the company
  • Determining plans and budgets
  • Determining policies for the company
  • Keeping itself informed of the company’s financial position
  • Ensuring that the company’s activities, accounts and asset management are subject to proper control

A directorship may entail risk

It is important to be aware that being a board member comes with a clear and not inconsiderable risk. If someone suffers financial loss as a result of the board’s decisions and makes a compensation claim, your personal assets could be at risk. Although the claim for damages may be directed at the board, each member of the board is personally liable.

It is not that we advise against taking up a directorship – on the contrary. It is a very exciting and rewarding task, but it is vitally important to be aware of the very real obligations attached to a directorship and to act accordingly. There are strict demands on the professionalism of board members and, although common sense and caution will get you far, they are not in themselves sufficient. You also need a minimum of competence to safeguard yourself from liability.

In summary, a place on the board comes with many rights and obligations. Many of the board’s duties are explicitly regulated in law.  Therefore, it might be an good idea to do some Research before you get involved in a new board.

New on the board? Get our checklist here

New on the Board? Get our checklist

Register here to download the checklist.
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