What is expected of a good board of directors?

Professionalism, collegiality and diversity. These are the three words that define today’s board of directors. The mission of this governing body is to set the long-term direction of the company and to ensure its sustainability.  

“The board creates the company of tomorrow, starting today,”explains Josep Tàpies, professor emeritus of Strategic Management of IESE Business School. The board of directors supervises, controls and governs. Appointed by shareholders, it leads the company towards the imagined and desired future.

Good governance: ensuring the sustainability of the business 

Directing is not executing. Managing is not setting the company’s direction. They are different responsibilities within a company and confusing them can jeopardize the sustainability and future of the business. What tasks fall to general management and what tasks belong to the board of directors? 

General management has a wide variety of mandates and duties, ranging from planning activities and producing goods and services to leading teams and guiding the people comprising the organization. Ultimately, it must create value for the owners, shareholders, employees and society as a whole. 

In turn, the board of directors is responsible for charting the course of corporate actions and aligning the shareholders’ interests with the good of the business. Herein lies the essence of corporate governance. 

The manager decides how things are done, the government determines what to do and who should do it. The former is a technical mission while the latter is a political mission, and both are essential for the company to run smoothly. 

“The board of directors creates the company of tomorrow, starting today”. 

Josep Tàpies, IESE professor 

The seven functions of the board  

The permanent agenda of a board of directors is structured around four main areas: strategy, policies, resources and control. But what are its responsibilities in each of them? The board should create the most value for the company through these seven functions: 

1. Safeguarding the company’s mission

El The board must ensure that the ownership has defined a clear mission and that it is translated into goals that are accepted by the management.

2. Defining the corporate character

By deciding on how the goals will be achieved, it also defines the kind of company it wants to be. 

3. Guiding strategy

The board approves the general strategies proposed by the company’s management, which will execute them. 

4. Appointing and dismissing senior management

The company must have the right people in the right positions. This is why appointing the CEO is one of the board’s main tasks.

5. Supervising and controlling management activities 

The board of directors must monitor and help the company’s senior management in matters that call for it. Among its tasks are evaluating the performance of the general management and giving it feedback.    

6. Protecting the company’s long-term future 

It identifies the main business risks and opportunities to ensure the company’s sustainability. 

7. Making decisions 

Ensuring sustainability calls for a certain degree of strategic and financial control, which is why the board approves budgets, defines investments and establishes priorities for action.  

How to be a good director 

Being a company director has undergone a radical change over the past few years. It is no longer an award or an honor but instead a profession, where experience is the best credential. Being a director is a responsibility that should only be taken on by professionals trained for it. 

For these reasons, when choosing the best directors for the company, only one criterion should be used: professionalism. A director is a corporate governance professional. This means having technical skills in certain topics to understand the issues to be addressed during meetings, as well as having enough time to study them and properly prepare for them. 

Proprietary, independent, executive, outside directors… Each director must be aware that the board is a collegiate body and that they are all there for the same purpose: to ensure the company’s sustainability and its profitability. To achieve this, each member in their role will have to contribute specific skills in the areas in which they have expertise, while working as one.  

Do not forget that both boards and directors have business and criminal liabilities if they engage in poor practice. Moreover, inappropriate action could lead to irreversible financial difficulties and put the company’s sustainability in jeopardy.  

The chair of the board acts as the conductor of an orchestra who has to create harmony among all the members. 

The chair of the board, the conductor of an orchestra in search of harmony 

It goes without saying that the proper functioning of this governing body depends on the members comprising it, but especially on the chair, who calls the shots. Truer words have never been spoken, as the chair acts as the conductor of an orchestra who has to create harmony among all the board members. 

As with conducting an orchestra, leading a board is a collective and dynamic process. It’s a difficult task, as the results depend on how certain people react to the ideas and issues presented to them. In fact, running board meetings well and getting all the directors to add value may be the chair’s most important contribution for the good of the company. 

The role of the chair is to head the board and not only to perform representative functions. They should make the board effective and make it function properly, and this can only be done if they are able to create an open atmosphere and a participative climate. For this reason, their leadership and decision-making style will determine the proper functioning of the board. 

To properly perform their functions, the chair has to be a methodical, organized person with leadership and coordination skills, who is capable of achieving consensus and has a strong practical approach, and who is able to put the decisions made into practice. The relationship between the chair and the CEO will largely determine the board’s value contribution.  

Are you interested in learning more about the functioning of the board of directors and the responsibilities that being a director entails? Don’t miss IESE’s High-performance board member program. With this training, you will be prepared to professionally and responsibly perform the role of director under the guidance of expert professors and current directors. 

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