Boards hold a crucial role in shaping the strategic direction of an organization. When a company’s boards and committees work well, we can see a clear system of checks and balances operating that help to reduce risk, improve accountability and stabilise the ship as a whole.
The idea of boards being at the core of an organization is deeply ingrained within our perception of how an effective business should run.
Having a series of boards and committees within an organization has become the norm. What is often lacking, however, is an ongoing audit to ensure that the processes that govern the manner in which they work, as well the interactions between them, continue to flourish and best serve the constantly evolving needs of the modern organization.
In this guide, we will show you the steps that you need to take to help guarantee that the strategic vision of your organization does not become fragmented due to inefficient board and committee processes.
Through the implementation of these steps, you will see improved collaboration between your boards and committees.
The advice provided in this guide is the result of over a decade of consultancy experience across Europe and the Americas. We have taken the findings of the most frequent challenges faced by boards and committees and converted them into actionable tasks that will help your organization to perfect their governance process.
Board Operating Procedures
Creating an operating procedures model
The operating procedures of boards and committees are crucial in dictating the way in which they take decisions and shape strategy at an organization.
Surprisingly, however, this crucial documentation is often overlooked by companies. It is important to create a model by which these operating procedures are created to ensure that all boards and committees within an organization are singing off the same the hymn sheet.
If each body is following a completely different set of procedures, then it is highly unlikely that they will be able to work harmoniously together.
It can also mean that even when decisions are taken, the process of transferring these decisions into an effective implementation can be complicated.
It is therefore of great importance that an organization develop a model for creating operating procedures, that must be adhered to by each board and committee in order to streamline collaboration.
Failing to adhere to the requirements of the country
Another issue that is common with many boards and committees is that their operational procedures do not fulfil the minimum requirements of the country in which they are operating.
This is a typical problem that can occur due to regulation having been updated and therefore it is important that the operational procedures of each board or committee are audited on a regular basis to ensure that it is meeting the required regulatory requirements.
This may sound like a basic point but is something that we have discovered as a consistent theme at companies across the globe,
Failure to approve committee operating procedures
The third problem within this area that is increasingly common is that even in the case that sound operating procedures exist, the Board of Directors may have failed to have approved the procedures of specific committees I the organization.
Failure to approve such documentation can serve to hamper accountability and credibility within the decision making organs of an organization. If the charter that governs a committee has not been ratified, then there is no guarantee that they will be following the same procedure model as other divisions of the organization.
It is therefore incredibly important that the Board of Directors ensure that they are on top of operating procedures across the firm as a whole.
Corporate Governance Structure
There are not enough committees for the size of the organization
To properly establish an effective governance structure, it is vital to ensure that the number and makeup of committees are properly representative of the size of the organization.
If a large company does not have a sufficient number of committees, it is likely that bottlenecks will occur when it comes to decisions concerning regulatory as well as strategic matters. It is therefore of the utmost importance, those committees are established in relation to the distinct branches of the company organigram to ensure that decisions that require oversight are able to be resolved in the most efficient manner.
For large organizations that have implemented a wide array of committees, it is important that the board of directors is able to maintain a clear vision of the status of all of these different groups to ensure the smooth running of the organization as a whole.
This where technology can be of assistance, through the implementation of board management software, as the leadership of a company are able to quickly identify the types of task being handled by each committee, as well where bottlenecks may be occurring. It also assists in the streamlining collaboration between multiple committees, guaranteeing that the chain of command and status of each issue remains visible at all times.
Auditing the Organisation’s Boards and Committees
Complying with the established framework
An incredibly basic error that can occur here is that the board of directors fails to comply with the regulations set out within the framework of the country of operation.
The board must, therefore, revise their structure and composition to make sure that it complies with the necessary legislative requirements and that the roles assigned are fit for purpose.
Certain members that make up the committees, or more importantly the board of directors, are incompatible due to a conflict of interest and therefore must be removed and replaced. There may also be other clauses that the current members of boards or committees fall foul of due to their profile. This should be identified as quickly as possible to ensure that the authority of the board and its decision-making powers are not undermined by the fact that they are failing to comply with their own operating procedures.
It is therefore important that such checks are carried out on a regular basis in order to protect the status of the board as a whole. Through the use of a board management system, this can be added as a periodic task so that that the overall quality of
Changes are not reflected in the operating procedures
A further issue can occur when there is a change within the specific structure of a board or committee and these updates are not reflected in the Operating Procedures of said board. In this case, it is vital that the operating procedures are thoroughly updated to accommodate such a change as it may have further implications in the way that the board or committee goes about its decision making processes.
A total lack of auditing
The final point that is reflected throughout this is section is that boards and committees fail to be audited of a regular basis with the explicit aim of identifying areas where the structure or composition of its members is no longer fit for purpose.
An effective board is one that continues to look for ways to stay on top of these issues so that its authority cannot be called into question.
A Clear Division of Committee Functions
No clarity in the division of tasks
In larger organizations across the globe, a problem that occurs frequently is a lack of clarity over the issues that particular body should be addressing on a regular basis. A lack of clear division can be problematic for the strategic direction of a firm if particular pressing issues, on one hand, are being dealt with by multiple committees whilst other matters remain untouched. It is therefore important that the leadership within an organization are able to quickly identify where there are overlaps or gaps and update the mandate in order to create the most efficient division of labour.
Drifting priorities in the work covered
In relation to this issue, it is common that boards and committees often fail to ensure that they are tackling the specific recurring issues that fall within their remit.
It is perfectly possible that a board or committee’s role evolves over time as the needs of the organization change. However, it is important that they stick to the mandate that has been handed to them as drifting can leave gaps within the compliance structure of the firm as a whole.
Board management software helps to ensure that each board and committee stays on the straight and narrow (in relation to their mandate) by allowing the creation of templates for recurring tasks, meaning that they are able to follow a more concrete meeting structure.
Whilst not large structural flaws such as the ones mentioned above, these are a list of further basic issues that continue to plague boards and committees regardless of the size of the organization or the country in which they are operating.
Ordinary meetings are not conducted on a regular enough basis to comply with the rules that have been laid out within the operating procedures of that board.
There are meetings that are being carried out without having satisfied the quorum requirement and therefore the decisions reached during those sessions should carry no weight and be disregarded.
Establish when to convene extraordinary meetings
Extraordinary meetings that should be called to deal with pressing matters or crises have not occurred. Certain situations that have been laid out within the operating procedures can require the board or committee to convene, failure to do so is a breach of such rules and therefore puts the wellbeing of the company and its employees at risk.
The minutes of certain meetings have been left unsigned, meaning that the agreed-upon actions have technically failed to have been confirmed by the members of that board or committee.
A lack of documentation
The specific details of the structure of meetings, where important decisions have been taken, are missing. These may include basic aspects such as the time and location of the meeting, or it could lack crucial information such as voting breakdown, the agenda items or even the attendance. Successfully maintaining a clear record of all meeting activity is essential in protecting the legitimacy of decisions taken by a board or committee.
There is not a strict control or enforcement of the board’s absence policy meaning that it is often possible that individuals are allowed to remain on the board despite the fact that they have failed to attend the required meetings. Attendance is a crucial gauge in maintaining the quality of the board and guaranteeing that the decisions that have been taken come from individuals that are informed and up to date with the current situation in which the organization may find itself in.
Boards that are made up of disengaged members who flout the rules surrounding attendance are all too common. Removing these members can be an excellent way to produce higher quality debate in meetings and therefore more considered decisions.
Many boards fail to produce an annual report that documents the decisions and advances that have been taken during that year.
Further to this, in the case that such reports do exist, there is often the lack of a model of the information that should be contained within such a document. Therefore, the annual reports produced by boards and committees within the same organization can be difficult to compare and contrast.
Ensuring an effective ongoing corporate governance structure is a matter of constant auditing.
Organizations, regardless of their size, are constantly evolving and it is therefore of vital importance that we are able to check that the corporate governance structure that has been established is fulfilling the role of keeping the company and its employees on the straight and narrow.
Without a strong system of checks and balances, minor compliance issues can end up being overlooked and consequently turn into large-scale problems that can cost the organization dear.
Board management software is increasingly helping to ease the workload that often comes as a result of maintaining boards and committees to a high standard. With a technological solution, it has become significantly easier to stay on top of corporate governance requirements by identifying specific issues at an early stage.
A good board structure is not just something that should be looked upon from the point of view as a compliance requirement. They hold a key role in shaping the future of an organization, whilst protecting it from both internal and external threats.
When a board is running well, the whole company is able to feel the benefits and for that point alone, it is worth investing time and resources into ensuring that it is more than fit for purpose.