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Business LibreTexts

10: Creating a High-Performance Board

  • Page ID
    22667
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    • 10.1: Managing Itself - A Board’s First Priority
      A strong and effective board is clear about its role in relationship to management and understands the difference between managing and governing. A board’s principal duty is to provide oversight; management’s duty is to run the company. A good board also understands that it, not management, has ultimate responsibility for directing the company’s affairs as defined by law.
    • 10.2: What Defines the Best In-Class Boards?
      A high-performance board governs by continually challenging—in a positive way—every significant aspect of the company’s operations: its business model, strategies, and underlying assumptions; its operating performance; and its leadership development. In doing so, a best in-class board should seek to create a culture of rigorous, relentless examination, and press for continuous improvement. This way it can set a “tone at the top” that reverberates throughout the organization.
    • 10.3: The Right Leadership - The Key to Board Effectiveness
      Independent board leadership capable of shepherding the board’s priorities and providing a voice for the concerns of other outside directors is critical to board effectiveness. An effective chair serves as the leader of the board, keeps directors focused on the board’s major priorities, sets meeting agendas, leads discussions, and occasionally serves as a board spokesperson.
    • 10.4: Understanding the “Sociology” of the Board
      No group can operate effectively without a well-defined, shared understanding of its primary role and accountability. The ongoing debate about the fundamental purpose and accountability of the modern corporation has created a problem for boards as a whole, as well as for individual directors—what behaviorists call a heightened sense of role ambiguity and, in some instances, increased role conflict.
    • 10.5: Time and Information Deficits - Barriers to Board Effectiveness
      To carry out their responsibilities, directors need to know a great deal. However, because of a board’s time constraints, the only effective approach is for the board to focus on lead indicators. The challenge is to know what the right lead indicators are—that is, which ones are unique to the company and its business model.
    • 10.6: Building the Right Team - Board Composition
      Behavioral characteristics are a major determinant of board effectiveness. Effective directors do not hesitate to ask the hard questions, work well with others, understand the industry, provide valuable input, are available when needed, are alert and inquisitive, have relevant business knowledge, contribute to committee work, attend meetings regularly, speak out appropriately at board meetings, prepare for meetings, and make meaningful contributions.
    • 10.7: Board Self-Evaluation
      In the aftermath of Sarbanes-Oxley, the stock exchanges mandated that boards of public companies and key committees, such as the audit committee, evaluate their own performance annually. Since there is no mandated or standard approach for such an evaluation, boards should select a process that best fits their needs.