The board’s task is to direct, which is why directors are called. The major works of the board include 1) strategy formulation 2) policy making 3) supervision of executive management and 4) accountability to shareholders.
Strategy Formulation
In formulating strategy, the board works with senior management, looking ahead in and outside the firm, seeing it in its strategic environment. (STEP: Social, Technology, Economic, Political)
Strategy formulation means setting the direction for the business, in the context of external competitive and customer market situation, and in the light of prevailing economic, political and technological factors. This is a crucial aspect of the board’s role: it is after all why directors are so called.
Strategies need to be developed, evaluated, and eventually, the directors have to make choices.
Policy Making
Strategies then need to be translated into policies to guide management action and provide plans for subsequent control. In formulating strategy and making related policy, a particular challenge to directors is to ensure that the long-term interests of the company are balanced with the short-term goals.
Supervision of Executive Management
The board must also monitor and supervise the activities of executive managers and at recent performance.
Accountability to Shareholders
Accountability involves looking outwards and reflecting corporate activities and performance to the shareholders and other stakeholders with legitimate claims to accountability.
Of course, boards vary in the extent to which the board as a whole engages in these functions or delegate works to the CEO and management team, while ensuring the necessary monitoring and control processes are in place.
The strategy formulation and policy making are performance roles, concerned with the board’s contribution to corporate direction. The executive supervision and accountability are essentially concerned with ensuring conformance.
In a two-tier board the roles are separated, with executive board responsible for performance and the supervisory board responsible for conformance.
Source: Bob Tricker, Essential Director, The Economist Newspaper Ltd, 2003
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