A dynamic board of directors strives to stimulate the exchange of ideas, identify key issues, consider alternatives, and make informed decisions. And this requires discussion and debate. So, how to avoid common mistakes?
How to organize an effective work of the board of directors?
Discord in the boardroom is inevitable, especially when the board consists of independent, educated, and open-minded directors who put their knowledge and talent into building the company’s future. A good board of directors consists of different groups of individuals, considers and discusses a wide range of issues, and aims to achieve consensus when making decisions; no one’s views prevail one hundred percent of the time. A board of directors where no one ever argues or where everyone always agrees is most likely an ineffective board that does not fulfill its function of overseeing and does not care about the best interests of the company.
What are the common mistakes during a board meeting?
Many owners are trying to come up with their own rules for the functioning of the boards. So, there are the common mistakes that turn boards into bureaucratic bodies, complicating the work of the company and not adding value to the business:
- The board of directors has no or insufficient independent members
Do you need high-quality external expertise, unbiased judgments, objective assessments? Inviting independent directors is inevitable. In world practice, the boards of directors include shareholders or their representatives, the general director of the company or his deputy (most often the financial director), and independent directors.
- The board of directors is not doing its own thing
Sometimes it is replaced by a council of shareholders, which is fundamentally wrong: the board of directors has a much wider range of issues. But it’s even worse if he turns into a board and deals with operating systems, decides tactical issues instead of strategic ones. The board of directors is about strategy. It is created to address the most important strategic issues of the level of coordination of the strategy and budget of the company.
- There are no specialized committees
The optimal composition is a committee for strategy, personnel and remuneration, audit, and a budget committee. Each member of the board of directors can be a member of one or two committees. The chapters can be independent directors or shareholders.
- The powers of the board of directors are limited
Often, the powers of the board of directors are deliberately limited so that it does not interfere with the shareholder in the manual mode of managing the company. The concentration of all power on one hand is the main problem of the corporate governance system.
How to avoid these mistakes?
A good board organization should, at a minimum, include well-functioning communication procedures both with and within the board, preparation of materials before meetings, and an orderly environment in which the board can conduct its business. Below are some of the best practices for preparing board meetings and avoiding common mistakes:
- Agenda and its content. A carefully thought-out agenda identifies the issues for discussion and provides the basic order of the meeting.
- Annual agenda calendar. To keep the peaks and valleys of the board’s work within reasonable limits, many boards draw up an annual agenda calendar.
- Frequency of board meetings. Typically, 6-10 board meetings per year will be sufficient, especially if there are committee meetings in between.
- The minutes serve as a reminder of decisions to be taken between meetings. Try to keep your minutes short and to the point, and usually take no more than four pages.