The Importance of Board Governance

The importance of engaged and effective board governance cannot be overstated. Thorough oversight of management, experienced guidance to the Executive team, and assistance to the CEO in decision-making are key activities in board governance.

Boards work within public, private and non-for-profit organizations in several important areas of focus:

  • Governance effectiveness
  • Audit committee
  • Risk assessment
  • Liability insurance
  • Board Charter & Terms of reference

Board members (Directors) will have gained professional certification from such noted development programs as ICD-Rotman and will have become members of the Institute of Corporate Directors. Board members are expected to possess a strong history of corporate or non-profit success, and have a sound knowledge of strategy, financial essentials, and corporate social responsibility.

Board members have a significant role to play in evaluating the strategy of a company, and in reviewing the capital investment to be made in executing that strategy. For a company to outlive and outperform its initial success, it must develop a strategic philosophy. Independent directors with business experience outside the company can be effective advisors in evaluating the direction, the risk and the cost of implementing that strategic philosophy.

Independence is one of the board’s most valuable contributions: independence provides a measure of guarantee that company resources will be allocated according to worth, as judged objectively. Without a board, the strongest divisions of an organization may easily become its most powerful, tied to its success, its view of the business climate, and its favourite projects. Smaller divisions that might be the source of new ideas, of innovations and untested but viable markets, may never get the chance to thrive. Strategic acquisitions, or sensible divestitures, may never happen without independent oversight and/or recommendations.

Independent Directors can also step back and view the corporation in ways insiders cannot. If the company’s success is dependent on current technology, which is subject to change, or to existing markets, which may easily be threatened by outside forces at short notice, an independent objective review can serve several purposes. The review may help to develop strategies that deal with possible stagnation or serious disruption to the business model.

Directors have a further value, in that their business experience will probably not duplicate that of the Executive team. Their viewpoint is from a different vantage, and they will have encountered or implemented widely different solutions to fiscal and operational issues during the course of their business careers. This diversity enables the board to arrive at a careful consensus that is unencumbered by the established practices and traditions of the corporation they now serve as Directors.

According to the Harvard Business Review “the board of directors’ most important function is to approve or send back for amendment management’s recommendations about the future direction of the corporation.”

Note that that the board is not responsible for creating the direction – that is the duty and the privilege of the Executive team. Neither is the board the final word – Directors act as overseers, while the CEO is the Chief Strategic Officer and makes the ultimate determination. The wise CEO realizes the board can strengthen both policy and practice and embraces the partnership of board and Executive team.

The current climate of expectations for corporate performance is a demanding one. Climate change, cultural diversity, sustainability practices, regulatory complexity, technology advances – these are factors entering into every business decision today. A knowledgeable and engaged board can be a valuable ally and a trusted business partner in a company’s quest for growth, impact and survival.