Board Membership 101: Risk Management

Decades ago, the notion of “risk management” boiled down to the simple act of buying insurance. These days, however, board members are expected to be much more involved in overseeing and evaluating their company’s level of risk.
Board Membership 101: Risk Management

According to PwC, risk management includes “the identification, assessment, and prioritization of risks and the application of resources to minimize, control, and mitigate the impact of unfortunate events on a business.

It is the job of a board to oversee that their management teams have adequate risk management policies and procedures in place.”

Overseeing risk isn’t a job that falls solely on outside directors, though. According to the Harvard Law School Forum, internal executives are expected to handle the day-to-day risks of their business operations, but directors should, “through their risk oversight role, satisfy themselves that the risk management policies and procedures designed and implemented by the company’s senior executives and risk managers are consistent with the company’s strategy and risk appetite.”

In other words, it’s the job of the board to ensure that the CEO and senior executives are completely engaged in systematic risk management behaviors.
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Board Membership 101: Self-Evaluation

Since boards of directors are self-governing bodies, it’s important that they take the time to reflect on their performance both individually and as a group. The New York Stock Exchange requires listed companies to participate in some form of an annual self-evaluation, so many organizations already have a process in place.
Self-Evaluation

But for some of these companies, board self-evaluation can be met with an attitude of obligation rather than receptivity to the benefits of a well-executed assessment.

For other, smaller companies, the practice of yearly self-evaluations has simply been overlooked in the past. These assessments, however, provide an outstanding resource for bettering board functionality. For example:
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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:

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Board Membership 101: Board Member Policy

board member policy

Policy-making may not be the most fun side of board membership, but it is an absolutely vital corporate director duty. Company policies affect every aspect of governance and decision-making—from CEO selection to board management guidance and beyond.

In a time when expectations for board members are soaring, policy-making has also become a significant way to reduce risk.

According to Mitch Dorger, experienced CEO and governance consultant, boards should be creating a strong policy focus. He writes, “Clear, concise and current policies improve the overall management of the organization…By having these documented, …[the board] speaks with one voice—avoiding a problem that many organizations have with multiple sources of policy guidance.” Unfortunately, many boards struggle to maintain a policy focus.

Dorger continues, “When I was still a chief executive officer, I led an effort to get my board to establish and document the policies that were needed to govern the organization…When I talked to the board about creating a policy focus, there was some confusion about what policies are and what they are not.”
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Board Membership 101: How to Hire a CEO

Chief executive officer selection and succession planning are among the most important responsibilities for any board of directors. In fact, some business writers will go so far as to say, “choosing the next CEO is the single most important decision a board of directors will make.” In the ever-changing corporate landscape, CEOs will come and go, which is why it’s important for boards to create a reliable process for how to hire a CEO for the organization they serve.
hiring a CEO

Most board members will tell you that finding and hiring the right CEO is a tall order. Directors know that a CEO’s influence and legacy can be felt for years after their departure—in both positive and negative ways, depending on the situation.

If the exiting CEO is merely retiring or moving on to another opportunity on good terms, it’s sensible to involve them in the hiring process. No one will understand the demands of the position quite like someone who has recently experienced them.

If the board lacks confidence in the CEO, though, the lead director should take charge of the process.
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Board Membership 101: Fiduciary Duties

Board Membership 101: Fiduciary Duties

The foundation of a board member’s service is their fiduciary duty to shareholders. Before we jump into what kinds of duties are involved, let’s look more closely at the word “fiduciary:”

fiduciary
(adjective): involving trust, especially with regard to the relationship between a trustee and a beneficiary.

It’s a word that we hear a lot in the corporate world, but its basic meaning often gets overlooked. Simply put, the word fiduciary is all about trust, and that’s exactly what’s required of directors under corporate governance law.

The Three Types of Fiduciary Duties:

  1. The Duty of Care

According to Investopedia, the duty of care “applies to the way the board makes decisions that affect the future of the business. The board has the duty to fully investigate all possible decisions and how they may impact the business. Because a company’s board of directors is tasked with making very important decisions, it is necessary that each member takes each issue seriously and adequately considers all options.”

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Board Membership 101: The Role of a Board of Directors

Present day corporate directors are faced with increasing responsibilities, expectations, and risks. Over the last twenty years, government standards for board oversight have grown more stringent than ever as the role of a board of directors evolves.

Role of the Board

But why exactly do boards of directors exist, and what is the role of a board of directors? Ultimately, boards exist to provide strategic oversight for a company and to protect shareholders’ financial interests.

In order to accomplish those goals, individuals who wish to serve on a board must be willing to take on the responsibilities expected of a director.

Below, you’ll find eight factors that outline the role of a board of directors.

  1. Provide strategic guidance.

Literally, board members are expected to provide the vision, mission, and goals for an organization. Metaphorically, they’re also responsible for the “big picture” vision for the company: where is it currently headed? Where does the company want to go from here?
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