Selecting and Maintaining an Effective Board of Directors
David A. DiIulis, CPA, MBA
7 April 2022
Board members of institutions are entrusted with guiding the organization towards achieving its overall mission through sound governance practices, oversight of financial management policies and ensuring that adequate and effective resources are in place. An effective Board sets the “tone at the top” holding itself and management to the highest fiduciary and ethical standards. It communicates this tone to the community on a continual basis through its oversight of the organization and its transparent actions.
The foundation of an effective Board begins with good governance. Governance is defined as the activity performed by an entity that holds authority within an organization. The Board is authorized to make decisions and set policies that define how the organization will carry out its mission and is also held accountable for the actions that follow from those decisions and policies. Good governance protects the Organization, its management, as well as the Board of Directors.
Effective Boards are generally comprised of various committees which delve in the detail of an issue, and provide summary reports to the entire Board. This is an effective use of time for the entire Board as less time and work would be spent at the Board level. It is generally good practice to follow the recommendation of the various committees. Typical committees include governance, finance, audit, investment, executive, development/fundraising, HR/Compensation and nominating.
Boards of trustees must also balance between micro-managing and placing reliance and confidence in the system of controls and the expertise of management within the organization. Board members should ask enough questions to satisfy themselves that qualified members of management are assigned to key tasks and proper ethical and governance standards are followed. The control environment sets the tone for an organization; it’s the foundation for all other components of internal control providing discipline and structure. The established controls set the tone at the top in regards to ethical and compliance behaviors of management and its employees.
Boards of organization should also consider instituting an institutional code of ethics that establishes an ethical culture that starts with Board leadership. A well-defined code of conduct defines the acceptable standards within an organization. Boards should avoid even the slightest appearance of a conflict of interest. All conflicts should be disclosed to the Board in a timely fashion. Annual conflict of interest statements should be signed by each Director on an annual basis.
Maintaining an effective Board of directors is an ongoing process. An organization should not be complacent about its Board composition and the roles of its individual members. There should be orientation programs for new directors and continuing education for existing directors. Succession plans should be in place for future Board and committee chairs. An annual inventory of the Board composition should be performed to ensure that the strategic goals of the organization and talents align with each other. Specific skill-sets should be addressed. Does the Board contain individuals that possess professional capabilities such as financial, legal, public relations and communications, human resources, fundraising or any other specific backgrounds needed for the specific nature of the organization? Board continuity and turnover provide a balance of history as well as provide new perspectives.