A board of directors is legally responsible for making high-level decisions, such as hiring and firing the chief executive officer, overseeing the strategic direction of the company, and making sure that the company’s goals are met. The majority of them are former and sitting executives and experts, as well as respected people selected from the community (called outside directors) and is the one who sets the corporate governance guidelines.
A well-functioning board has a clearly defined mission and is able to operate with open communication, respect for diverse viewpoints, and accountability to shareholders and stakeholders. It also includes directors who are independent who are free of conflicts of interest and who have an eye on the long-term for the company’s success. A formal orientation process and building relationships with other members, and agreeing to meet at the right time are essential.
A good board member is not only smart in business, but also curious. They are able to ask constructive questions to the management and to other board members that challenge their thinking and help them make the best decisions. A board member’s specific experience can be a valuable asset.
Boards are increasingly taking on more tasks, such as strategic planning as well as risk and resilience management, diversity and inclusion, and technology and digitalization. In turn, they are required to be digitally literate and better board relationships have an increasing part in hiring and succession planning for the CEO and other senior leaders. The COVID-19 pandemic has taught boards that they need to be more proactive in addressing uncertainties and crises, according to McKinsey.