Friday 22 September, 2000
This article looks briefly at the job of the board and outlines some shortcoming of governing boards in all sectors.
The sad truth is that many, if not most, boards do not add value
to the organisation or to the CEO's job. If a cost benefit analysis was
carried out and the same remedies used as are applied to other failing
elements in the company, many boards would be done away with or, at
least, fundamentally restructured. The management and governance
literature is littered with CEO and shareholder criticism of boards for
their failure to fulfil their most basic duties. Indeed, many CE0s would
happily do away with their boards on the grounds that they add a burden
rather than produce a benefit.
From the CEO's point of view, to justify its existence the board must be more than a figurehead group whose only meaningful job is to announce a dividend at the annual shareholders' meeting. However, neither does the CEO want the board to become another tier of management, spending valuable time rehashing the most recent operational period, reviewing financial and sales results, debating decisions that could or, in their view, should have been taken and generally telling the CEO how to do his or her job. Yet this describes many boards.
The board's job can be summarised as:
Reduced to its essence, the role of the board has two core elements. Firstly it must perform a role as a trustee, a fiduciary, on behalf of the owners, producing an appropriate benefit for them. Secondly, and equally importantly, it must provide leadership for the organisation, or company as a whole.
It is not uncommon to hear it said that the CEO should drive the board. Indeed many directors rely on their CE0s to define the board's role and lead the process of governance. This is not how it should be.
Rather, the board should drive itself with the CEO providing the fuel for the journey by way of appropriate reporting, sound advice, clear analysis and strong, well thought through recommendations.
Lazy or misdirected boards easily fall prey to disgruntled CE0s who, out of frustration take over the steering wheel and assume total control of the company. Ultimately this predicament is unlikely to serve the best interest of the CEO, the board or the owners.
The board and the CEO each have separate but interdependent roles. The company's success depends upon each fulfilling their role in support of the other. While many CE0s spend an inordinate amount of time supporting their board, many of those same boards fail to support their CEO in any meaningful or appropriate way.
Source:ceo-online.com
From the CEO's point of view, to justify its existence the board must be more than a figurehead group whose only meaningful job is to announce a dividend at the annual shareholders' meeting. However, neither does the CEO want the board to become another tier of management, spending valuable time rehashing the most recent operational period, reviewing financial and sales results, debating decisions that could or, in their view, should have been taken and generally telling the CEO how to do his or her job. Yet this describes many boards.
The board's job can be summarised as:
- Setting a clear strategic direction for the company as the result of ongoing strategic thinking as a basic board discipline
- Setting performance targets for the CEO to achieve
- Assessing the risks facing the company and creating company
policies that guide the CEO's and staffs actions in managing the risks
- Monitoring the CEO's and the company's performance against targets, external requirements and company policies
- Reporting to the shareholders on the company's performance.
Reduced to its essence, the role of the board has two core elements. Firstly it must perform a role as a trustee, a fiduciary, on behalf of the owners, producing an appropriate benefit for them. Secondly, and equally importantly, it must provide leadership for the organisation, or company as a whole.
It is not uncommon to hear it said that the CEO should drive the board. Indeed many directors rely on their CE0s to define the board's role and lead the process of governance. This is not how it should be.
Rather, the board should drive itself with the CEO providing the fuel for the journey by way of appropriate reporting, sound advice, clear analysis and strong, well thought through recommendations.
Lazy or misdirected boards easily fall prey to disgruntled CE0s who, out of frustration take over the steering wheel and assume total control of the company. Ultimately this predicament is unlikely to serve the best interest of the CEO, the board or the owners.
The board and the CEO each have separate but interdependent roles. The company's success depends upon each fulfilling their role in support of the other. While many CE0s spend an inordinate amount of time supporting their board, many of those same boards fail to support their CEO in any meaningful or appropriate way.
Source:ceo-online.com
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