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What You Should Know as a Board Member

A confident woman with short white hair dressed in a business suit, embodying a contemporary professional image.

The Board of Directors is the company’s supreme body and must play an active role in its management. The board ensures that plans, budgets, and policies are determined for the operation of the business. A board membership comes with many obligations and responsibilities, and many of these duties are explicitly regulated by law.

In other words, being a board member is a lot of responsibility. The decisions made at board level help shape the company’s future. 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. 

The Boeing 737 MAX crisis is a good example of the importance of boardroom decisions. 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.

The board has a lot of pressure to make sure that it's acting with the best intentions of the company, but also with the benefit of clients and end users in mind. 

Board member: The importance of taking the right decisions

It was reportedly only after the jet crashed into the Java Sea on October 29, 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. 

This tragic incident highlights the issue of power and how much power and responsibility the board members have. It is deeply important to be thorough when making a decision on behalf of the company and ensure that you come to the right decision. 

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's not that we advise against taking up a directorship – on the contrary. It's a very rewarding task, but it's 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.

Know every part of the board and their roles 

There are many roles that make up a well oiled and functioning board. No role is more or less important than another. There should be no hierarchy aside from the board chair. Everyone's thoughts and opinions should be valued and appreciated by everyone on the board. Boards cannot function without there being universal respect and open communication throughout all roles. 

The board is not an extension of the organisation 

The board and the company should work together as partners instead of one leading the other. Think of the board and the company staff as wheels on a car. The car cannot run without equal support from all sides. No one is there to take or give directions, only to come to an agreement on what should be done in the best interest of the company. 

Your ideas matter

There is room for everyone's thoughts on the board. If you've just joined a board and are a little unsure about if you should speak your mind right away, don't be shy. You have the ability to bring fresh perspectives and a new way of thinking to old systems. 

Strategy is everything 

If this is your first time on a board, you will come to learn that a majority of your time will be spent on strategising what the company will look like in three years, five years, ten years, and more. Your ideas can heavily influence the longevity and legacy of a company. Keep in mind that these strategies are not necessarily set in stone. Be open to iterating and adjusting to certain influences, both internal and external. 

Financial decisions and responsibilities

As the board, you will be responsible for the financial stewardship of the company. You will work with the CFO either separately from the board, with them as a board member, or in a dual role as the board secretary. The board members must collaborate and strategise effectively with the CFO as you make important financial decisions together. 

The board is additionally responsible to for reviewing and signing off on budgets, financial statements, and making any other monetary decisions. 

The legal and fiduciary duties of the board 

When you are part of a board, every decision that you make has to refer back to your legally mandated fiduciary duties. These outline how board members and directors must operate and the level of care that they must take when making decisions, no matter what the size. The fiduciary duties are obedience, care, and loyalty.

    • Duty of Obedience: The board must ensure that the organization complies with regulatory standards, laws, and governing bodies. All decisions and actions must relate back to the purpose and overall goal of the organisation.
    • Duty of Care: The board must act in a way that anyone with regular judgement would. The board must be informed about the organisation's activities and make decisions based on the information and facts that they have available at the time. There is always a risk associated with making such important decisions, so all directors and members must understand the level of responsibility they hold. 
    • Duty of Loyalty: The board and its members must always put the needs of the organisation above their own. loyalty to the and disclose potential conflicts of interest. Board members must also never use their position on the board for personal gain. 

These rules might seem harsh or strict but they are the guiding principles that every board member must keep in mind. 

In Conclusion 

All boards must operate with care, trust, loyalty, awareness, fairness, and safety. It's deeply important that your morals and ethics remain strong in order to deliver the best results for the board and organisation possible. 

 


 


More on this topic is available in our guide to The 5 behaviours of the digital board.


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