In today’s climate, boards are under increased scrutiny and governance continues to be a key compliance function. As a result, sound governance practices are an important focus for organizations.
Boards are expected to set organizational culture and foster an environment that encourages ethical conduct and a commitment to legal compliance. These expectations have played out in the wake of the #MeToo movement, with many boards reviewing their contribution to the company’s culture and their role in monitoring that culture. Board members are now overseeing the addition of anti-harassment policies, establishing procedures for addressing workplace harassment complaints, and taking an active role in the company’s response to such complaints.
In order to further its goal of sound governance practices, the board should first understand its legal duties to the organization. These include:
- The Duty of Care. Directors should exercise diligence and attentiveness to their board responsibilities by attending meetings and actively participating. They should exercise reasonable prudence in carrying out their duties in the best interest of the organization.
- The Duty of Loyalty. Directors owe a duty to faithfully pursue the interests of the organization, rather than their own personal interests or that of any other person or organization. Directors should avoid conflicts of interest or even the appearance of them. Directors are prohibited from self-dealing or diverting opportunities for their own personal gain.
- The Duty of Obedience.Directors should act with fidelity, within the law, to the organization’s mission. Directors should be familiar with federal, state, and local laws related to the organization, as well as be familiar with and follow the organization’s governing documents.
- Fiduciary Responsibilities. Financial oversight is a core responsibility of the board. Directors have equal and shared fiduciary responsibility for the organization. They should understand the content and significance of the organization’s financial statements and audits, and protect and appropriately use the organization’s resources.
Successful boards are self-aware, function in constructive partnership with chief executives, and are committed to continually improving performance. Best practices for meeting these responsibilities and incorporating good governance principles often include:
- Meeting Attendance. Board members should make it a priority to attend all board meetings unless exceptional circumstances exist. One of the legal obligations for all directors is the duty of care. Without attending meetings — and preparing for them conscientiously — a board member is less capable of participating in educated and independent decision-making.
- Member Recruitment. The board should be strategic about member recruitment and define its ideal composition based on the organization’s priorities.
- Strategic Planning. The board should play a substantive role in developing, approving, and supporting organizational strategy. One of the board’s primary responsibilities is to set the direction for the organization.
- Chief Executive Oversight. The board should develop a written job description for the chief executive, define the annual expectations jointly with the chief executive, and evaluate the chief executive’s performance annually.
- Audit. The board often oversees the organization’s annual audit, selects the auditor, and meets with the auditor in an executive session without staff present to discuss the results.
- Review of Bylaws and Policies. The board should review and amend its bylaws periodically as necessary. Board members should also review company policies and training requirements to ensure they remain legally compliant and reflect best practices.
- Use of Committees. The board’s standing committee structure should be lean and strategic. Typically only ongoing board activities warrant a standing committee.
- Complaints and Investigations. The board should understand how to identify complaints in their various forms, take those complaints seriously, and ensure they are investigated by the right people. This includes ensuring that no employee is punished or discriminated against because he or she reported improper conduct.
Because the trend of increased board scrutiny will likely continue, board members should understand their roles and comply with the corresponding legal requirements.