Frequently Asked Questions

Read answers to some of the common questions people ask about boards and governance.

1. What is the role of the board of directors?

The role of the board of directors is to act on behalf of absentee owners or shareholders of the company or organization. The board of directors is the highest level decision-making body within an organization. It is responsible for planning the future or the organization and seeking to achieve results - the right results for the organization.

The Board's primary functions include ensuring the right management is in place, setting strategic direction for the firm or organization based on its mission and values, establishing policy and monitoring outcomes or results.

2. Who needs a board of directors?

All corporations, whether for-profit business or nonprofit organization, require a governing board of directors to manage or supervise their business affairs. All boards should have a planned system of governance; the design of each governance system depends on the needs, the level of complexity and the financial imperatives of each organization. Good governance should not be underestimated for any board of directors.

3. What is the 'fiduciary duty' of the board of directors?

A fiduciary duty is the obligation to act in the interest of the owners of the organization. Boards of directors make important decisions on behalf of their shareholders (the 'owners' of the organization) - they must do so in a trustworthy, responsible manner - that is, with integrity, good faith and due diligence. Directors must avoid any real or perceived conflict of interest - that is any circumstance where a director's personal interests may conflict with those of the organization.

4. What is the role of Committees?

The role of a committee to is support the work of the board. Committees can greatly assist the work of the board by:

• analyzing and deliberating complex issues in greater depth
• making recommendations or providing feedback on policy and direction
• informing the board regarding new and emerging issues or concerns.

In some circumstances, committees can also be a source for new directors.

While the board can delegate authority and work to committees, the board remains accountable for all decision-making. Committees are most effective when there is a clear understanding of their role and performance expectations.

5. What committees should a board have?

Best practices in governance suggest that a board have a minimum of board committees, only the number of committees it requires to do its work. A board of directors is advised to have a Governance Committee and an Audit Committee. A Compensation Committee (sometimes known as a Human Resources Committee) is also recommended.

• The role of the Governance Committee is to ensure the board has a good governance system in place. It is responsible for development and oversight of policies and processes, including a well-planned recruitment and nomination process for directors, an orientation and ongoing board development program, and an evaluation process.
• The role of the Audit Committee is to assist the board in fulfilling its financial oversight responsibilities. Primary duties include monitoring financial statements and financial reporting to the board, financial risk management and working with the external and internal auditors.
• The role of the Compensation Committee is to ensure that the board maintains top-quality management. This Committee oversees retention, evaluation, compensation and succession of the organization's CEO or Executive Director.

Depending on its organizational needs, the board may strike other committees, or ad hoc task forces, for specialized areas such as risk management, quality control, community consultation, or major campaign development and oversight.

It is important to have the right number of functional board committees. Each committee adds to the demands on the organization and the board in terms of resources, administrative support and oversight.

6. What is the role of the chairperson?

The chairperson (also chairman, chair) of the board oversees the performance of the board. Sometimes called the 'first among equals', the chair unifies and directs the board in fulfilling its responsibilities in an ethical and efficient manner. The chair's main task is to preside over productive, participative board meetings.

The chair, along with the Chief Executive Officer, represents the organization to owners, stakeholders and general public. The chair is also the key link between the board and management.

7. How is a chair appointed?

The process for appointing a chair is usually set out in the organization's constitution or policies. A chair may be nominated by the Governance Committee or fellow directors; the board will know best who amongst their number would be the ideal leader. In other cases, he or she may be voted in by shareholders or appointed by a third party.

8. What is strategic planning?

Strategic planning is a disciplined approach to planning the long term future of the organization. The strategy flows from the mission of the organization - it is the road map for achieving its vision.

Every organization should have a current and realistic strategic plan that answers these questions:

• Where is our organization at now?
• What major accomplishments do we wish to achieve?
• How do we do achieve them?

9. What is the role of the board in strategic planning?

Every organization needs a 'big picture' plan to direct and guide its long term planning. At minimum, it is the responsibility of the board to:

• ensure a strategic planning process is in place
• ensure realistic and time-bound strategic goals or ends, based on the mission, have been articulated
• monitor progress on achieving goals or outcomes

It is in this brainstorming, planning process that the board can truly add value. Drawing on their varied skills and worldly experiences, directors can provide broad input and advice on strategic priorities, flag risk opportunities and challenges, and assess the ethical implications of strategic decisions.

10. What is an 'independent director'?

An independent director is one who is free of loyalties or commitments that could influence his or her decision-making, creating a conflict between personal interest and the interest of the organization for which he or she is a director.

Independence is commonly described as the 'absence of any direct or indirect significant relationship' between a director and the organization. This is a relationship between a director and senior management, or a contractual relationship with the firm.

Another perspective of independence, equally important, is an independent frame of mind. Boards need directors who are independent thinkers, critical analysts - directors who are willing to ask challenging questions, and who are thorough decision-makers.

11. What is the difference between a working board and a policy board?

A policy board operates at a very high level within the organization. Its focus is on strategy and oversight, and importantly, overall results - rather than day-to-day management decisions and actions.

Carefully crafted policy, that is, the guidelines that set out how things will be done, is fundamental to good governance. Boards should have a range of written policies which set out how it will do its work. Such policies include the board mandate and board major responsibilities such as ensuring the right management is in place, strategic planning, financial oversight, risk management, communications, etc.

A working board may function at this high governance level but it is also involved, deliberately or otherwise, at the management/executive or day-to-day level.

For smaller or newly established boards, this may be a necessity due to shortage of personnel and resources. Too often, however, the board risks duplicating management work. The result is confusion in roles, redundant or inefficient use of resources and internal discord.

It is essential that the board understands and performs its governing role first and foremost. Any involvement at the management level must be understood and justifiable.

Note: A common understanding of governance in terms of a policy board comes from the seminal work of Dr. John Carver. Carver Policy Governance offers a "fully integrated and coherent" system of policy-led governance which should, by direction of its author, be incorporated in its entirety. Dr. Carver's work is among the first bodies of knowledge that has opened the door to long overdue and critical dialogue about governance.