Guidance on the Role of Directors for Not-For-Profit Companies
This paper is intended to be a brief guide for Directors, specifically in not-for-profit companies, though much of it is equally relevant to for-profit organisations also. Most issues are not fully elaborated on, but only discussed in sufficient depth to give broad guidelines for actions and behaviours which will facilitate the smooth operation of a school over many years. The material is kept brief so that it may easily find a place in a Policy Manual for Directors.
The roles of the Board are discussed under the following headings:
A. The Purpose of a Board
B. Moral and Legal Obligations
C. Conduct of Board Meetings
D. Relationship with Stakeholders
E. Personal Responsibilities of Board Members
A. The Purpose of the Board
A Board exists primarily to manage an enterprise. The enterprise should maintain financial viability; it should meet its stated goals; it should be consistently working towards a strategically planned future.
In other words, a Board manages the affairs of a company by looking:
• back to its goals (probably expressed as Objects in the Constitution;
• in the present at the finances and the practical outworking of Company policy;
• to the future, for an effective and manageable vision and strategic plan.
A Board is primarily concerned with determining policy (ends), whereas operational management (the CEO and staff) are concerned with the implementation of policy (the means towards those ends). It is imperative that neither group usurp the other's task.
Boards deal with policies and planning of the big picture. The CEO puts these policies and plans into practice.
Another way of looking at the different roles of Board and CEO is to consider who each one represents or serves.
The Board represents and serves primarily the owners of the Company - ie, the members of the Company. The CEO represents and serves primarily the beneficiaries or the clients of the Company.
Understanding this fundamental relationship will facilitate much decision-making and clarify many issues.
B. Moral and Legal Obligations
Legal obligations often consume greater energy and attention to detail than moral obligations. And yet a failure by school boards to meet moral obligations will bring an organisation to public or private grief more quickly and more frequently than many legal issues which may be patiently resolved.
Board members have placed on them all of the following moral obligations:
a) Maintain confidences - what is said or written in a Board Room must never go outside, even to a spouse.
b) Avoid politics and deals. Lobbying before important decisions may win short term goals, but it will destroy the unity of the Board. Alliances and friendships (which are essential to good Board relations) must be left outside the Board Room, and picked up again on departure. Practice of this principle will ensure the existence of open and frank debate, and honest, uncluttered decision-making.
c) Do not seek any personal gain or benefit, from any transaction or business of the school. There will be occasions when a school uses a Board member’s business or company. All such involvements must be kept entirely open, at arm’s length, and avoid any conflict of interest in the arrangement of terms.
d) Maintain a breadth of vision. Some Directors may be closely related to clients or staff. Close vision can be blinkered vision and leaves one open to accusations of self-interest.
In addition to the above, Board members are required by the law to meet the following legal obligations, (and the consequences of failing to do so can be very significant):
a) Ensure that the requirements of the Company Constitution are upheld at all times. Members should be vitally aware of the Objects of the Association.
b) Ensure that financial commitments undertaken by the Company are reasonable and capable of adequate servicing under a variety of future scenarios.
c) Ensure or be assured that the CEO is managing the organisation in such a way as to comply with current laws, e.g. - Workplace Health and Safety Act, Child Protection legislation, Anti-discrimination laws, Taxation laws.
d) Ensure that there is no conflict of interest in any Board discussion or decision, in regard to any Director’s business or private life.
C. Conduct of Board Meetings
a) The Committee Structure: The purpose of committees is to minimize Board meeting time. Committee reports should be complete, but concise. They should clearly list recommendations and/or concerns. While not limiting the rights of Board members to essential information or the need to meet legal obligations, the Board meeting is generally not the time to hold a Committee meeting. Where decisions are not quickly forthcoming, the relevant Committee should be asked to reconsider the issue with guidelines on areas of concern.
Generally speaking, success of the Committee structure depends on the following:
• at least two Board members on each committee;
• effective staff representation on relevant committees;
• CEO as ex officio, and delegable member of all committees;
• thorough and timely reporting from committees;
• good liaison with Board Executive and CEO;
• effective Chairing of Committees and of Board.
b) Meeting Procedure: Faithful adherence to established patterns of meeting procedure, including agenda construction and minute-taking is essential for long term management. Good chairmanship will exhibit a careful mix of discussion time and closure of debate. It may not be necessary to vote formally but the Committee or Board Chair should ensure a consensus has been reached before declaring a matter determined. A consensus does not mean unanimity. A healthy Board will frequently exhibit differences of opinion, but consensus or a reasonable majority should be achieved before action is taken. They will also exhibit a preparedness to rule some items out of order or inappropriate. A Board must not be side-tracked into doing the job of the paid staff.
c) Advance notice and distribution of Board papers is a necessary discipline of effective Boards. Any paper important enough to be tabled is generally capable of being distributed before the meeting. (There will be exceptions, but exceptions should be made only on grounds of extreme urgency or extreme confidentiality, not inefficiency).
D. Relationship with Stakeholders
a) With Staff
(i) Board members must recognise that the staff are responsible to the CEO, not the Board. A staff member is not obligated to follow any instruction given by a Board member. In fact, no such instructions should be given.
(ii) Board members can contribute greatly to staff cohesiveness by thoughtful gestures of support and encouragement, formally enacted through the Board Chair. (See the section, “Personal Responsibilities”).
(iii) Board members should never allow staff to use them as a way of getting to the CEO or the Board. Practise saying, “Have you spoken to the CEO about this?”. Never bring such topics to the Board or the CEO. Make the staff member go through the CEO. (Common sense will indicate when a matter of utmost gravity, e.g. immoral or grossly unfair conduct) may require a discussion with the Board Chair in regard to a matter shared by a staff member in regard to the CEO.)
b) With Clients or Community
(i) As for (a) (iii) above. This is one of the hardest things to do, especially when accosted after a meeting, or in a social occasion. But it is absolutely essential for good management. The only consolation is that the more you do it, the less you have to. And the reverse is also true.
(ii) Ensure your spouse does the same as is recommended in (i) above. Spouses of Board members, CEOs, Ministers all face the same problem. They are seen as the least formidable “ear” for bashing. Insist that they practise saying “I don’t get involved in those matters. You must talk to ....... Shall I tell him/her you will be contacting him/her soon?”.
(iii) Board members can be very positive spreaders of good news by carefully “gossiping” the good developments of the organisation. Positive talk breeds positive talk. And the reverse is also true.
(iv) Avoid the temptation to believe that the audible voice is the representative voice. The silent component may well be the most significant. There is a knack of listening to the silence, as well as to the noise-makers.
c) With the CEO
(i) Board members should remember that the CEO will often have to suffer the isolation of leadership. S/he needs support and encouragement. Everyone tells the CEO everything that is wrong, and he is generally unable to tell anyone else. In any given day the CEO will have had complaints or concerns or have heard of serious difficulties from clients, staff members and the general community. Many of these must be maintained in confidence, not to be shared with anyone. The CEO will appreciate an ear s/he has learned to trust.
(ii) The CEO is the most critical investment the School makes. Board members should do all in their power to protect all aspects of that investment.
E. Personal Responsibilities
There are several things that a Board member can do which do not require great talent or effort. But they will reap powerful benefits for the whole school.
Of the following, not many Board members can do all of them, but should try to do as many as possible.
a) If this is a religious organisation, pray for the organisation, the CEO, the Staff and the Board frequently.
b) Attend as many public functions of the organisation as you can.
c) When attending the above, try to express to staff members your appreciation of their efforts.
d) Discuss any concern you may have in the first instance with the Board Chair who may agree to take the matter up with the CEO or advise you to do so.
e) Take every opportunity to “talk up” the organisation in the local community.