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A position description for the board.

A position description is one of a number of measures by which the board can organize itself to make an effective contribution.

Much has been written and talked about that the United States has lost its leadership role in the world economy, particularly in certain key sectors. We must be careful not to generalize that this situation is true of all American industries. There are many companies, large and small, that are doing an outstanding job under today's economic conditions. They anticipated the impact of global management and technological changes and met them head-on.

Why certain large companies in major industrial sectors failed to recognize or act on these changes is hard to tell. Now they are facing drastic restructuring under pressure, which is never a satisfactory situation. If they had moved early on to meet and take advantage of global change and its opportunities, then this restructuring could have been done in an orderly, intelligent manner without the shattering impact that the plant closings and layoffs are now having.

When all is said and done, we must recognize that those responsible for this failure to act are the board of directors, the chief executive officer, and his management team.

If you are going to operate as a corporation, you must have a board of directors. That is the law. Unfortunately, the law does not specify exactly what this really means. The board of directors represents the shareholders' interests, but it also has a larger responsibility of making certain that the activities of the corporation reflect favorably on the governments, community, employees, customers, and vendors. It is not the responsibility of the board to manage the business on a day-to-day basis, but it is the board's responsibility to see that the company is well managed.

The membership of corporate boards to a large extent has been determined by the chief executive officer. If he is a strong, confident, competent chief executive, he will try to get the ablest board he possibly can, composed of members who understand the role of the board and have the ability to perform. If he is not that competent and confident, he will try to get a board that meets the legal requirements but little else. This latter practice has resulted in the long recognized fact that the board of directors is often the weakest link in the management chain.

There are numerous factors that make it possible for a board to be truly effective.

The membership should be chosen by a nominating committee rather than by the chief executive officer alone. This nominating committee should be composed of outside directors, one of whom acts as chairman. The chief executive should be a member of that committee, since anyone who is not compatible with the CEO should not be nominated.

The board should meet at least once a month on a regularly scheduled basis and the management should provide in advance an information package showing results versus plans and other items that will be on the agenda. This package should arrive a few days ahead of the meeting.

Mandatory retirement age for all directors should be set. When an inside director retires, including the chief executive officer, he should also retire from the board.

Structure of Meetings

The board meeting itself should be conducted in two parts. The first should be a reporting session when the CEO and key members of the management team make their reports on their progress against plans, request for appropriations, and other matters that affect their operation and require board approval. This is a full discussion session, but no final action is taken. The second session is the executive session with the board members alone discussing what they heard, making recommendations and comments, and taking any actions that are required or indicated. Minutes of the meeting should be prepared promptly and sent to all directors for their approval or corrections.

A board and management review retreat can be a major element in an effective working relationship between the board and management. This retreat should be held at some location where the participants are free from interruptions and enough days are set aside to give ample time for a thorough review of the corporation's results against plans:

1) Where are we? What business are we in?

2) Where do we want to go?

3) When do we want to achieve these objectives?

4) What will we have to do to get from where we are to where we want to go?

5) Who will do what?

6) What resources will it take?

7) Can we do it?

The first subject to be discussed is the conceptual plan for the corporation. This is presented by the chief executive officer, who reviews where the company has been, where it is now, and where it should go in the long term. This includes all aspects affecting the company: products, competition, world and national economy, technology changes, and so on. This is very important, and ample time should be spent on it for a full presentation and discussion. It should include organization structure and people needs, present and future, as well as the financial needs of the company.

The second phase of discussion should deal with the strategic plans that have been developed to achieve the conceptual objectives of the company. These are presented by the key executives and cover their areas of responsibility for the business. These strategies also are carefully reviewed by both management and the board to make certain that they are as sound as can be developed at this time to meet the company's objectives.

The third phase to be discussed on the agenda should be the operational plans. Again, this is done by the key executives, and they review their results for the past period (usually a year), how well they achieved their objectives, what problems they faced and how they handled them, and what they see from an operational standpoint relating to the strategic plan of their areas of responsibility.

Ask the Hard Questions

All of these discussions are on a no-holds-barred basis, with the hard questions being asked. Carefully recorded minutes are kept of those subjects discussed, and any conclusions reached and recommendations made are included and are provided for each attendee for their future reference and use.

One of the advantages of such a retreat is that the board members and the management team really get to know each other and develop an understanding and relationship. This is very helpful in their interchange of ideas, thoughts, and comments during the year.

Finally, the board of directors should have a position description which clearly spells out its role, responsibilities, and degrees of authority granted. A typical position description for the board appears on the following pages.


I. Purpose

To provide the kind of high-quality direction to the total affairs of the business that will ensure the development and growth of the company in products, in services, in markets, and in financial results.

To provide for continuity of management of the quality and depth required to attain the objectives and serve the purpose of the business.

To serve as trustees for the investment of the shareholders; to serve as the broad policy-setting body of the corporation and as selectors of, and advisers to, the general management of the company.

II. Scope

The entire company.

III. Duties and Responsibilities

A. Shareholder Relations

1. Serve as trustee for all the shareholders.

2. Whereas operating duties and decisions are generally delegated to officers, directors must retain their overall responsibilities to the shareholders for corporate performance.

3. Approve change in bylaws of the company.

4. Approve all proposals to be submitted to shareholders for approval.

5. Approve reports to shareholders.

6. Approve plans for conduct of shareholder meetings, if not routine.

B. Financial Structure and Actions

1. The board, as a whole, reviews the report of its audit and finance committee and the responsible officers, to ensure full compliance with approved policy and codes of conduct with all outside groups and agencies, at home and abroad, and to ensure that the company's policies, codes of conduct, financial reports and practices are well within acceptable limits of practice in such matters.

2. Approve actions respecting dividends.

3. Approve any action involving disposal of a capital asset in excess of $____, between $____ and $____ to be approved by the executive committee, and under $____ by the chief executive officer.

4. Approve any donation or contribution in excess of $____ and annually ratify other contributions.

5. Review and approve regular capital-investment budget programs and authorize specific individual capital investments exceeding $____ not included in approved budgets.

To approve specific individual capital investments of $____ or more, before their commitment, even though included in the approved capital budget. Capital investments between $____ and $____ to be approved by the executive committee, and under $____ by the chief executive officer, when the item or items are included in the approved capital budget.

6. Establish regulations and controls concerning issue, transfer, and registration of company securities.

7. Authorize all leases of more than 10 years duration or involving payments over $____ per year, except in the regular course of business. The executive committee to approve all leases between $____ and $____ per year and the board itself for all leases over $____ per year.

8. Approve selection of outside auditors.

IV. Policies, Objectives, and Plans

A. Exercise the general power as the governing body of the corporation within the limits defined by statute, charter, and bylaws.

B. Establish broad policies for the corporation, usually, but not exclusively, upon recommendation of the general management.

C. Approve short- and long-term objectives recommended by management as to nature of business, profitability, growth, and the like.

D. Critically review and advise on long- and short-range planning of the corporation. Periodically evaluate progress against such plans.

E. Approve annual operating and capital budgets.

F. Approve all acquisitions and mergers subject to authorization by shareholders when necessary.

G. Approve major changes in company organization form and ensure an adequate organization for the future through formal manpower and organization planning procedures.

H. Approve major changes in policy, plan, and method of conducting the business.

V. Management

A. Elect the chief executive officer and such other corporate officers of the company as proposed and delegate management responsibility and authority to them. Approve their position descriptions. Appraise the performance of the chief executive officer.

B. Approve selection of general counsel for the company.

C. Establish compensation plans for officers of the company.

D. Authorize officers to sign various written instruments and to take financial actions.

E. Approve overall programs for management development and see to it that such exists.

VI. Controls

A. Identify the board's business and management's business. Hold management, in the person of the chief executive officer, accountable for results.

B. Identify the board's needs for information and arrange for its timely supply. To review, at least annually, the information furnished the board by management, to ensure its adequacy.

C. Inquire into major deficiencies in performance, through the chief executive officer.

D. Identify barriers to company progress and sense the winds of change in the business world that might affect the nature and opportunities of the business. Propose changes of company direction.

VII. Employee Relations

A. Approve all pension and retirement plans and other employee benefits.

B. Ensure, through continuing review, that all employees of the corporation act in accordance with established ethical and professional standards.

C. Approve all actions and relations with political and other outside groups, where time and effort on part of officers is required.

VIII. Government and the Public

A. Accept responsibility for establishing specific corporate policies governing compliance with government rules and regulations in the use of corporate funds for nonbusiness purposes.

B. Require of management the establishment of codes of proper conduct in carrying out the purpose of the business. This may be expressed in positive terms or negative restraint terms.

C. Establish within the audit committee responsibilities the charge that compliance with all such codes and policies are audited for full compliance.

D. While ever mindful of their basic responsibilities as trustees for the shareholders, the board of directors recognizes that this responsibility can best be served by being sensitive to the impact of their policies and decisions on the public at large, as well as on the employees, vendors and customers.

IX. Working Relationships

A. The board members represent the shareholders and are individually, and collectively, responsible to them for the sound and proper performance of their duties.

B. The board directors serve as counselors to the chief executive officer and, at his request, to other members of the general management of the company, and offer constructive advice and counsel and promote actions that are in the best interests of the corporation.

C. Directors should be on the lookout for new business, generally, and assist in specific company contacts when requested to do so.

Source: J. Keith Louden, The Corporate Director Inc.

J. Keith Louden is President of The Corporate Director Inc., a management education and board counseling and recruitment firm. He began his business career in the 1930s, served during the decade of the 1960s as President and then Chairman of the American Management Association's Presidents Association, and over the years has served on 30 boards of public and private companies, often being the first outside director named to the board. He has written several books on management and governance.
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:board of directors
Author:Louden, J. Keith
Publication:Directors & Boards
Date:Mar 22, 1993
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