Is your Board of Directors effective?

The Board of Directors is there to provide leadership and to set the scene in terms of vision and values for an organisation to prosper. Improving the performance of a Board has become more critical as directors have come to terms with the events of the credit crunch and recession.

The chairman plays a key role in setting the tone for the Board and it is essential that this position is elected and carries the same duties and legal responsibilities as the other directors. The most important task for the chairman is to ensure that there is a balance to the board in terms of skills and experience and that open debate and challenge can feature and flourish.

More and more directors have found themselves protecting their businesses and spending less time directing in terms of developing their skills and communicating the long term strategy for the organisation. When times are good there is room to make some mistakes and take risks but many companies have fallen foul of ignoring strategic risk.

Many Boards of all sizes have realised that risk assessment is a valuable tool in their operational areas but few apply risk assessment techniques to their Boards to understand the tolerance or level of risk aversion that each director demonstrates. The formalities of internal audit and quality control are usually well-defined at lower levels within an organisation if they are relevant, but rarely do small companies evaluate their exposure in these areas at a strategic level.

Striking the balance between too little and too much risk can be difficult. An effective Board of Directors can demonstrate that balance and take responsibility for their decisions. The result of this is the ability to build a reputation of stability and trust within the organisation and to external stakeholders.

The UK Corporate Governance Code recommends that Board effectiveness is reviewed annually and that a senior non-executive director assesses the chairman’s performance.
In an owner managed business the position of non-executive director is unlikely to exist but can be fulfilled by a trusted adviser.

To find out more about any of these stories or Ward Goodman please contact 01202 875900