Why Have a Board of Directors?

Keys benefits of an effective board

Why have a Board of Directors?

Corporations are legally required to have a board of directors. The law imposes a number of important duties and responsibilities on directors. The board of directors forms the supreme governing authority that stands for the rights and interests of the shareholders and other interested stakeholders–objectively taking care of the assets invested in the business, and ensuring that the company efficiently achieves its goals.

Whether a for-profit or nonprofit, the board of directors has a dual mandate:

Advisory: consult with management regarding the strategic and operational direction of the company. It’s important to build a strong, supportive, and stable relationship with the CEO. Wise Boards need to develop one-to-one relationships with the CEO and fellow directors outside of the boardroom to provide advice and feedback on ideas. This builds trust over time.

Oversight: monitor company performance and reduce agency costs. As overseers, governing boards provide strategic leadership for an organization. A board’s oversight is crucial in setting direction, making policy and strategy decisions, monitoring organizational performance, and managing risks. Board governance is essential for the organization to fulfill its mission in the most effective ways possible. A nonprofit board assures the public and individual stakeholders that the organization can be trusted to fulfill its stated mission.

Effective Boards

Boards are there to help management perform at optimum levels, foresee future opportunities and avoid costly mistakes. Directors working within this board structure are particularly helpful in:

  1. Improved Business Performance: Independent directors can bring additional skills that your business may be lacking. They can also contribute their experience, especially if they have been through the growth stage of a company, like yours. Independent directors offer you an invaluable source of expert advice and act as a ‘sounding board’ outside of your friend, colleague, and family networks. They also introduce their networks that you and your company can draw on.
  2. Better Access to Capital: Outside expertise can improve your company’s positioning and credibility in the market. Establishing an independent board demonstrates that you are committed to good governance and compliance. If you are trying to raise funds, investors and/or donors will have a greater degree of comfort if they can see real independence demonstrated in your board and an audit committee, chaired by at least one experienced director with financial expertise.
  3. Greater Management Accountability: By distinguishing between management and oversight you take the next step in forming a business with intrinsic value. This enables greater attention to be paid to both governing and managing respectively. Managers become accountable to the owners, who are represented by the board.
  4. Ensuring Compliance: The board’s fiduciary role provides the legal framework necessary to ensure that an organization safeguards its assets and complies with laws and regulations at every level.
  5. Reducing Risk: ensuring your company identifies and mitigates risks and looks for new opportunities
  6. Strategic Oversight:Boards help management out-think competitors, address obstacles, bypass disruptors, and fine-tune its direction.

Companies evolve and shift quickly today, due to market conditions, global crises–like the COVID-19 pandemic, emerging technologies, and upcoming competitors. A great Board when can contribute to the success of the company’s short-term and long-term success.

Effectiveness of Boards depends on “information symmetry”.

Accoring to the scientific research paper, When are outside directors effective? (RanDuchina John G.Matsusakab Oguzhan Ozbasb), Board effectiveness is influenced by how difficult it is for outside board members to acquire information about the company (i.e., close the “information gap” with insiders).

If the cost of acquiring information is low, performance increases when outside directors are added to the board. If the cost is high, performance deteriorates.

Board Director is a tool to promote information symmetry. Our board portal is online software that provides a document repository for your outside directors. They also have instant access board meetings, board voting, company news, and secure discussion sbetween members of a board of directors.

Our board management software is an all-in-one platform making scheduling and preparing for board meetings easier while helping board members be informed, organized and engaged.

Sign up for a FREE trial: BoardDirector.co

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