Role of the chair
The chair plays an important role in the operation of the board with one of their main duties being to set the agenda and run board meetings. They are responsible for guiding the meeting to clear outcomes for management to carry out. The chair should invite all possible views on an issue and then work to a consensus decision between board members. The chair should ensure all decisions are understood and recorded.
The chair must provide leadership in developing an effective governance culture and ensuring there are strong communication flows between the board and management. The chair is the main link with the CEO and this relationship is critical.
Types of directors
There are three types of directors:
Executive directors have a dual role as employees of the company and as directors. As directors they:
- have responsibilities, but must retain a degree of independence from their executive role
- should be appointed as individuals, and not because of any position they hold within the company
- must always be alert to the potential for conflicts between their management interests and their duties as a director.
An executive director brings an insider’s perspective to the table which can be very valuable when discussing the operations of a company.
These directors bring an outside perspective to the table and often a wealth of knowledge and experience. A non-executive director may be representing a major shareholder but an independent director will generally have no other links with the company other than sitting on the board. The non-executive director’s principal role is to provide independent judgement. This includes:
- outside experience and objectivity on all issues which come before the board
- understanding detailed knowledge of the company's business activities and on-going performance, so they can make informed decisions
- recognising the division between the board and management.
The boundary often gets blurred in SMEs. For example, a non-executive director may be appointed to fill a gap in knowledge and expertise, and end up assisting management in that area.
To gain true separation between management and governance it makes sense to include independent board members. Some owners can feel threatened by this independence, but in the end their outside thinking can enable the business to grow and develop valuable long-term strategy.
Committees of the board
Committees of the board may be set up to deal with specific issues such as a takeover bid, a major commercial deal, or a research project. Other committees (listed below) operate continuously and in conjunction with the board. The significance of smaller committees is that they can work in greater detail and reach decisions faster. Often directors are appointed to committees with specific skills in the subject they are considering.
The audit committee produces accurate financial statements and ensures that the organisation is following the necessary accounting standards. They play an important role in ensuring additional oversight of the organisation's finances. Members of the committee should wherever possible, be independent non-executive directors.
The nomination committee focuses on the appointment of directors to the board and aims to maintain a balance and diversity of skills, knowledge and experience.
The remuneration committee deals with the remuneration-setting procedures for director, CEO and sometimes senior management, in a transparent and objective manner.
NB: These committees should be properly established by a board resolution to ensure they have clearly laid out mandates.
The company secretary is the administrator of the board and ensures that the board functions efficiently and in accordance with relevant legal and other requirements. The secretary assists the chair with the organisation of papers, meetings, induction of new directors, and other duties to ensure the smooth running of a board.