A board of directors’ responsibilities

by Sean O'Neill on May 8, 2023

Boards must lead

A board of directors has many roles and responsibilities but the most important responsibilities are to protect an organisation’s shareholders and be accountable to all stakeholders.

The board plays a vital role since it is the link between the company’s owners – its shareholders – and its executives and management, and increasingly, it is the link between the company’s impact on society and the environment.

As board accountability evolves, it becomes increasingly clear that the ‘buck stops with the board’.

With the stakeholder capitalism movement gaining more steam, boards face more pressure regarding accountability and transparency.

There is an increasing expectation among shareholders that boards ensure companies take action against significant issues like climate change.

Activist hedge funds have been the most influential drivers of increased accountability on boards. Board members have even been voted out and replaced by such shareholders.

Employees are also taking action to pressure boards into being more accountable. The same can be said for politicians and those in the media, who also increase the pressure on boards to become more accountable and transparent.

One of the benefits of encouraging a strong culture of accountability is that directors will become more careful about their actions, reducing risk.

Key points

  • Board accountability involves being transparent and responsible for decisions
  • To do this, boards need to ensure they have the proper process for gathering information
  • Open and honest reporting builds trust
  • Board reports should be fair and balanced

Board accountability means that the board takes responsibility for the company’s actions and presents them transparently to stakeholders.

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Benefits of accountability

When starting, it is essential to emphasise the benefits that can come from greater accountability and ensure that buy-in is obtained from the entire board.

One of the benefits of encouraging a strong culture of accountability is that directors will become more careful about their actions, reducing the risk of making bad decisions.

Another advantage of board accountability improvements is that they can align board members and improve general performance in line with corporate strategy.

Who should the board be accountable to? 

The board should be accountable to shareholders (the owners) regulators, the courts, accreditation bodies, clients, customers, and financial institutions.

Directors should ensure that they are managing any conflicts of interest and are compliant with their legal obligations.

How to encourage board accountability

One of the first steps which can be taken to increase accountability is to determine the risks in the organisation and to create clear communication channels. Open and honest reporting helps build further trust among stakeholders.

The first steps involved can be:

  • Gathering intelligence from stakeholders: This means considering shareholder value and stakeholder value.
  • Ensuring the board has the right resources: In an era where diversity and inclusion, and climate change are higher on the agenda, boards should include they have access to the right resources to succeed in these areas.

A board of directors responsibilities are many

When it comes to strategic reports, boards must lead and ensure that they are fair and balanced in their assessment of company performance, promoting positive and negative aspects without bias.

Boards need to aim for more than minimal levels of disclosure, but it is recognised that boards will also require protecting commercially sensitive information.

Some of the duties which directors are expected to perform are attending meetings, remaining properly informed, making enquiries and obtaining input from third parties.

Within the non-profit sector, it can sometimes be challenging to encourage board accountability since some board members work voluntarily and may be pretty busy with other roles.

Providing individual responsibilities for board members and goals attached to each position can help create a strong board culture.

Board directors should also be aware of any unethical behaviour, such as fraud, insider trading, or misuse of funds. Performance should be monitored around attendance at meetings and delivering on responsibilities.

In addition, term limits can be applied to board members, which will ensure that board members can be let go from their position at the end of a term if there are any issues.

Boards must lead and take responsibility

Another step to creating better board accountability could involve job descriptions for board members outlining their responsibilities and to whom they are accountable. Having board members sign up for such descriptions can help create a contractual reminder of board members’ responsibilities.

Time can be set aside for evaluation where each board member could submit a report on what they feel they have achieved during the last year. In addition, the performance of the board as a whole unit can also be discussed. Such evaluations could be aligned with periodic meetings.

A greater degree of continuity could be provided during role transitions by developing a mentoring program, and a culture of accountability, in general, should be encouraged.

Having board members self-report on their progress can also be a helpful step. Senior leadership should be able to set an example when it comes to accountability, which means being open to positive and negative feedback and acting on it.

Boards need to demonstrate strong oversight regarding areas like compensation, and there should be a certain amount of transparency when it comes to the board’s decision-making.

So, greater board accountability is better for the entire economy since it creates better trust among shareholders, building more market confidence.

It also shows that companies are being managed responsibly and good performance is being appropriately rewarded.

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