Feb 13

Role of the Board of Directors- Business Tip

Different business executives and scholars have different on views about the roles and responsibilities of a board of directors (BOD). However, most of them have a lot in common. In simple terms, a BOD is a group of people legally charged with the responsibility to govern a corporation. In a for-profit corporation, a BOD is a group of individuals that are elected as, or elected to act as, representatives of the shareholders to establish corporate management related to making major or strategic decisions on company issues and control in terms of policies. In a nonprofit corporation, the BOD reports to stakeholders, particularly the local communities which the nonprofit serves. Here below, we share with you the 5 most important reasons why you need a BOD.

1. Nurtures Independence and Accountability

Boards are (or at least are expected to be) independent, act only in the interest of the organisation, free from conflicting interests that can compromise their judgment and be able to take a solid stand in times of difficulty. From a legal perspective, directors have a dual mandate of advisory and oversight. They are collectively or in rare cases even individually accountable for your company’s performance, compliance and risk mitigation strategies.

2. Development Strategic Direction

BODs have the utmost responsibility of establishing the organisations’ strategy. The level of involvement of the Board however may vary depending on the size of organisations. Rather than just being a “rubber-stamp”, engaged Boards take a lead role in devising Corporate Strategies, ensuring that the company and all its departments are aligned towards its Strategic goals and organisational capacity at the same time monitoring proper implementation and execution of these Strategic Plans.

3. Enhances Credibility and Legitimacy

An effective BOD depicts integrity and availability of balanced objective advice which minimises or eliminates risk. Funders, financiers, Investors and other partners view it favorably, which effectively lowers the cost of capital financing for organisations. Customers, employees and vendors view it as a safeguard of their interests. The vital safety of interests of various stakeholders of an organisation due to the existence of BODs further enhances the credibility of the business.

4. Supports Effective Corporate Governance

An organisations’ Corporate Governance structure is critical for its successes. Corporate governance is the system of rules, practices and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community. They are guidelines as to how your company can fulfill their goals to enhance value.

5.  Attracts Skills and Expertise

Many organisation (especially small ones) may not have all the skills competencies and experiences needed to operate effectively and continuously in an ever-changing environment. A BOD helps the senior leadership to step back from the daily operational grinds and focus strategically on its business. Directors bring expertise from Strategy, Human Resources, Operations, Finance, Legal, Marketing, ICT and specialised industry related skills are almost always sought after. Other directors can bring along business contacts and networks, especially relevant for start-ups and high-growth companies. BODs also stand to gain when they have Gender, Demographic and Cultural Diversity.

By Brian Ahabwe Kakuru

Brian is the Managing Director at BLEGSCOPE®, and has 12+ years of management consultancy experience notably in the finance & banking industry, MSMEs, FMCG companies and in the service industry. You can follow him on twitter >> @BrianAhabweK

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