Board Membership 101: Financial Oversight

Chances are good that if you ask a stranger on the street what a board member’s most important job is, they’re likely to mention finances. Boards have long been seen as the “make it or break it” play callers for corporations that either boom or bust.
Board Membership 101: Financial Oversight

Financial oversight, while closely related to fiduciary duties in general, calls for a board member’s attention to detail and ability to understand the current position of the company’s financial assets. Although every decision a board member makes may not be a financial one, all of their decisions will affect the financial future of the organization they serve.

Providing a company with great financial oversight takes serious effort on the part of board members. Here are some ways that they can excel:

Pay attention to all financial reports and ask questions

This may seem like a common sense suggestion, but because boards often contain committees specifically for budgeting and auditing, other members sometimes let their individual knowledge fall by the wayside. It’s important that every board member has a firm understanding of the company’s latest financial position even if it’s not in their particular area of expertise. If the financials look suspicious or don’t make sense to you, don’t assume someone else will speak up or will better understand. It’s imperative that you seek a satisfactory explanation from management.

Use good policy to your advantage

Just like we mentioned in our previous article, having good policies in place can provide excellent financial protection for a company. According to the DC Bar Pro Bono Center, here are some examples of policies that make a big difference:

  • A conflict-of-interest policy to guard against self-dealing transactions.
  • A document retention policy to protect against loss or inadvertent destruction of documents.
  • A code of ethics to establish conduct guidelines for board, management, and staff.
  • A whistleblower policy that protects staff who report unethical or unlawful practices within an organization.

Seek and provide in depth training.

According to Forbes, “Less than 10% of all U.S. companies provide training programs for audit committee members. Only 25% of the U.S.’s largest publicly listed companies have at least one audit committee member who has financial expertise AND recent experience in a finance-intensive job.” In other words, even board members who are selected to handle the most financial oversight aren’t always thoroughly versed in the field. Consider the option of bringing in an outside expert to provide the entire board with comprehensive training.

Every organization will come with its own special demands for financial oversight. Nonprofits, for example, will have to be aware of all the legalities surrounding 501(c)3 status and what that means for board member responsibility. At the end of the day, education is the key factor: board members must educate themselves about the financial status of their organization as well as educate themselves on “best practices” and evolving financial intelligence.

Posted in General Board Topics and tagged , , .