A Detailed Guide to Board Governance
What is board governance?
Board governance refers to the set of rules, systems, and processes that guide the structure and operation of a board of directors and the organization they represent. It encompasses all aspects of how the board functions and achieves its objectives.
The primary focus of nonprofit governance is to ensure the organization stays aligned with its mission and serves the public interest.
Board governance is a complex issue that varies between for-profit and nonprofit organizations and depends on the size and type of the organization.
6 common board of directors structures and governance models:
Governing Board - This board is responsible for providing guidance to the organization's management and acting in the best interest of the shareholders.
Managing Board - In this governance model, the board members are responsible for making decisions and managing the daily operations of the organization.
Advisory Board - As its name suggests, this board provides advice to the company's management and governing board of directors. Members of the advisory board bring their expertise and experience to provide guidance to the organization's leadership.
Working Board - The members of this board are both directors and employees of the organization. They are responsible for developing the organization's strategy and policies, as well as implementing them.
Cortex Board - This governance model prioritizes the value that the company brings to the community. The board members are responsible for setting standards and expectations for board performance to achieve the company's objectives.
Policy Board - In this model, the board directors are second in influence to the CEO. They create general policies for the organization, and the CEO and senior executives are responsible for implementing them.
What is the difference between an advisory board and a governance board?
An advisory board serves only as an advisory entity. It provides the management team with non-binding recommendations, analytical perspectives, and strategic counsel on the growth and development of the company.
On the other hand, a governance board is comprised of directors who are legally accountable for the direction, management, control, and governance of the organization. The members of a governance board have a fiduciary obligation to the board and its major shareholders.
In other words, an advisory board does not have the authority to make decisions on behalf of the organization or bind it in any way. Whereas a governance board operates within a model where decisions are binding for both the directors and the organization as a whole.
The Role of Board Governance
The responsibilities of board governance can vary greatly depending on the organization’s type, structure, and whether it is a private or public company, or a for-profit or nonprofit organization.
Five common duties of board governance include:
Ensuring Organizational Success
The board of governance plays a crucial role in ensuring the success of the organization. They undertake a set of actions that contribute to the growth and prosperity of the organization.Defining Long-Term Strategic Vision and Mission
The board is responsible for defining the overall purpose and mission of the organization. They develop strategies and policies to guide the company toward its goals, while the implementation of these plans is left to the organization's management.Shaping Organizational Leadership
The board plays a key role in identifying and hiring C-level executives, as well as removing them when necessary. The board's actions are guided by the company's mission and strategies, which the executives are expected to implement.Sharing Expertise
Board members often provide valuable insights and knowledge to the organization's executives, which can enhance organizational performance. Their expertise can provide new perspectives and solutions to challenges facing the company.Assisting with Decision-Making and Risk Management
The board helps the organization make decisions quickly and efficiently, which contributes to the company's growth. They also help resolve conflicts, improve crisis management, and provide answers to pressing questions, avoiding stagnation.
Board Governance vs. Management
The terms "governance" and "management" are often used interchangeably, but they refer to different aspects of organizational leadership.
Board governance refers to the role of the board of directors in making decisions about the company's direction and establishing its strategies.
While management is responsible for implementing these strategies and making decisions at various levels within the organization.
6 Board Governance Challenges
Balancing Stakeholder Interests
Disagreements between stakeholders can pose significant challenges to governance. For example, when one shareholder prefers a conservative approach to growth while another prefers a riskier strategy, it can be difficult for board members to establish a unified growth strategy and mission.Ensuring Independence and Objectivity
One of the biggest challenges facing boards is maintaining independence and objectivity in decision-making. Board members must balance the interests of the organization with those of stakeholders and avoid conflicts of interest.Recruiting and Retaining Skilled Board Members
Attracting and retaining talented and experienced board members is essential for effective governance. This can be a challenge, especially for smaller organizations or those with limited resources.Balancing Oversight and Support
Another key challenge for boards is finding the right balance between oversight and support for management. On one hand, boards must hold management accountable and ensure that decisions are in the best interest of the organization. On the other hand, they must also provide support and guidance to management in order to help the organization succeed.Staying Current on Regulatory Changes and Best Practices
The governance landscape is constantly evolving, and boards must stay informed about changes in regulations and best practices in order to effectively govern the organization.Addressing Cybersecurity and Data Privacy Concerns
With the increasing dependence on technology and the growth of cyber threats, boards must be proactive in addressing cybersecurity and data privacy concerns. They must ensure that appropriate measures are in place to protect the organization and its stakeholders from cyber-attacks and data breaches.
