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Business LibreTexts

10.1: Managing Itself - A Board’s First Priority

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    22661
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    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.

    To meet these obligations, a board must take responsibility for its own agenda, or it will not be independent. Management cannot be responsible for directors’ skills and processes and should not have more than a consultative role in decisions, such as choosing new directors. Boards can no longer be just “advisers” who wait for management to come to them. As fiduciaries, they must be active monitors of management.

    The specifics of the board’s role and modus operandi will vary with size, the stage and strategy of the company, and the talents and personalities of the CEO and the board. Clearly, “one size does not fit all.” There are, however, basic legal requirements and “management” skills that boards can and should adopt regardless of their role and structure. The goal should be to make the board perform as well as it wants the company managed.

    Two critical determinants of board effectiveness are the directors’ individual and collective motivation and capabilities. The most effective boards score high on both dimensions; they know and respect the difference between governance and management and appreciate where and when they can add value. Conversely, boards that score low on both dimensions are likely to be ineffective and function mainly as a statutory body. Capable boards with low levels of motivation represent a missed opportunity, whereas highly motivated but less capable boards tend to meddle or micromanage.