Everyone in business knows that there are two central authorities in a company: management and the Board of Directors. While management directs the day-to-day activities of enterprise, the Board of Directors acts in a supervisory role over management on behalf of the shareholders to ensure the long-term viability of the company and its activities.
Although you can’t cleanly separate the functions of short- and long-term supervision, and it’s essential that these go together (which is why so many companies’ CEOs also serve as Board Chairpersons), what the board thinks is ultimately weightier and more authoritative in the case of conflicting opinions.
However, defining the role of the Board can get complicated for those large enterprises that are made up of a large number of different entities in overlapping jurisdictions. This post provides a brief rundown on the functions of the Board, and how technology can help to assess and execute the tasks of the directors for large businesses with complex structures.
Q: What is the function of a Board of Directors and how does it differ from that of management?
A: The Board of Directors is an organized group possessing the collective authority to control and foster development of the institution. It may be an oversimplification to say that the Board makes the decisions while management carries them out, because directors ultimately rely on the information management gives them to practice governance — and to carry out the objectives they set.
In any case, there is, and should be, a relative independence of the role of directing from that of senior management. Boards are ultimately responsible to the company shareholders, who through them exercise a mediated authority over the company’s operations and planning.
By appointing senior managers like CEOs, and determining their own composition, the Board, in effect, sets the tone for operations and the relationship between a company and its investors.
There’s a pretty common standard for how the composition of a Board is decided. They are always elected, although some companies have Boards in which each office turns over every year while other Board members serve three-year terms, with one-third of directors coming up for election at the annual shareholders’ meeting — both methods have their advantages and disadvantages. For most companies, Boards recommend their own composition to the shareholders through proposing a slate — a sure sign of a crisis is when the Board and a group of shareholders propose different slates of incoming directors.
Q: What are the important functions the Board carries out in large or multinational organizations?
A: Whatever the size of your organization, the Board has ultimate responsibility for making the big decisions, while management interprets them and carries them out. Among other things, this responsibility entails:
- Designing the corporate strategy — includes testing the business model and handling overall risk management
- Planning for, selecting and approving executives, establishing and measuring performance standards, and designing compensation packages
- Keeping operations kosher by ensuring the integrity of published financial statements, approving major asset purchases, and protecting the company’s assets and reputation
- Representing the interest of the shareholders by ensuring compliance with the law
In an organization that is composed of many entities, the role of a board may be fragmented according to the roles of various subsidiaries. This is why standing and ad-hoc subcommittees of the Board are established for specific needs. Boards may also operate as “shadow” directors over subsidiaries established according to the law of the jurisdiction(s) they operate within.
Q: How can technology assist the Board in carrying out its supervisory and other roles?
A: An integrated software platform can be of immense help to the Board of Directors in coordinating with management and making decisions. Since Boards have the relative independence we discussed earlier, it’s likely the typical board member will combine this role with others — for example, in senior management of a related firm, or as people who support the company’s objectives outside the strictly business realm.
Because it’s a hat they wear only some of the time, state-of-the-art technology can be of enormous assistance to a Board. Some of the features of a solid software framework for board management include:
- Constant, immediate and secure communication between members
- Immediately accessible recordkeeping for board and board subcommittee discussion
- Integrated management of different entities through a centralized data repository
- Supporting relationships with management and corporate secretaries
These features can make the difference between a unified, disciplined and responsible body to guide operations on the one hand and a fractious membership at odds with one another that fails in its basic tasks on the other. They and many others are what’s offered through Blueprint OneWorld’s entity management platform. Please call or email us today to discuss our solutions.