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The Board of Directors - Role & Duties

By Stanley Epstein

When we look at corporate governance we notice immediately that we have a focal point to which everything flows and from which everything emanates. That focal point is the board of directors.

The board of directors (which I will simply refer to as the ‘board’) is the centre of gravity of all business enterprise. Depending on the nature of the business organisation the board may well go under a different name. The names that a board may appear under, include the ‘board of governors’, ‘board of managers’, ‘board of regents’, ‘board of trustees’, or ‘board of visitors’ etc. Irrespective of what it is called, for most businesses the board represents the head of the business organisation.

By definition a ‘board of directors’ is a body of members either elected or appointed who together oversee the activities of a company or an organisation.

This role puts the board right in the firing line when it comes to corporate governance. The board is central to the whole question of corporate governance.

The United Kingdom’s Cadbury Report of 1992 put it succinctly when they referred to the board as being ‘…juxtaposed between Shareholders on the one hand, and on the other, Managers of the entity.’ Put another way, it creates a distancing between the ownership of the business (the shareholders) and the control of the business (the managers).

In the middle of these two extremities sits the board– a trustee for all the shareholders and the ‘commander’ for all the activities of the business,

The roles and responsibilities of the board is to provide leadership and strategic guidance while exercising control over the company. The board has to direct and control the management of the company while sitting in objective judgement over company affairs, totally independent of management. The board is accountable at all times to all the shareholders of the company.

The dimensions of the board’s responsibilities involves three separate functions – direction, control and accountability. We examine each of these in turn.

Direction involves;

• The formulation and review of policies, strategies, budgets and plans, risk management policies, and high level HR policies,
• Setting the objectives of and monitoring performance, and
• The oversight of acquisitions, divestitures, projects, financial and legal compliance, etc.

Control Involves;

Prescribing the various codes of conduct (sets of rules to guide behaviour and decisions in a specified situations) under which the business will be run (for the different aspects of the businesses activities),

• Overseeing the processes for proper disclosure and communication,
• Making sure that the right control systems are in place to protect the assets of the business, and
• Reviewing performance and where necessary realigning action initiatives to achieve the objectives of the business.

Accountability Involves;

• Ensuring the creation, protection and enhancement of the business’ wealth and resources,
• Making certain that reporting on the activities of the business is both timely and transparent, and
• Safeguarding ‘good corporate citizenry’ which includes the discharge of stakeholder obligations as well as societal responsibilities without compromising in any way the goal of shareholder wealth maximization.

Sealed HSBC Report Shows U.S. Managers Battling Cleanup Squad

From Bloomberg Business –

“HSBC Holdings Plc, smarting from a $1.9 billion fine for providing banking to money launderers and sanctions-dodgers, promised U.S. officials it would clean up its act.

Within a year, its reform efforts met resistance from leaders of HSBC’s U.S. investment-banking unit - some of whom mounted a campaign of bullying, footdragging and discrediting against in-house watchdogs, according to previously unreported details from a report by the bank’s court-appointed monitor.

HSBC agreed to submit to the monitor’s oversight in late 2012, as part of a pact with the U.S. Justice Department that required it to bolster its in-house controls. Armed with that directive, HSBC compliance officers singled out a half-dozen clients whose activities could put the London-based bank at risk --including a Saudi bank that had been linked to Sept. 11, 2001, hijackers - and advised the U.S. investment-banking division to consider dropping those relationships.”

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