Not every board of directors assumes the same responsiblities, nor do they carry out the same tasks. Here's a look at the most common practices.
The board of directors plays an essential role in the success (or failure) of the organization it serves. But what exactly does a board of directors do?
In fact, there’s quite a lot expected from those who sit on a board. Responsibilities vary by organization type — as well as the role each director serves on the board.
Board of Director Responsibilities: The Basics
The term “board of directors” might conjure images of a group of executives in suits sitting around a long table at the headquarters of a Fortune 500 company. This scenario isn’t inaccurate; a board of directors is the nucleus of any publicly traded company. However, there are many other types of organizations governed by boards, including nonprofit organizations, professional associations, and financial institutions, among others.
At publicly traded companies, board members are elected to represent shareholders. So, at the highest level, their duty is to act in the best interests of shareholders. On the other hand, the role of directors on a board at a nonprofit organization is to ensure an organization is meeting the needs of those served by its work.
Boards across organizations of all types have common responsibilities. The board of directors provides strategic governance and oversight to myriad aspects of the organization’s operations, ensuring it is always moving closer to its goals.
Fiduciary Responsibilities of the Board of Directors
A seat on the board of directors comes with fiduciary responsibilities. But what exactly does that mean?
A fiduciary is a person or entity trusted to act in the best interests of another party. In this case, the board of directors is trusted to act on behalf of the organization it serves.
Of course, all boards are different. But in general, directors must fulfill three fiduciary responsibilities:
- Duty of Care: The board must take care to understand how every decision it makes will impact the business, and then act accordingly. Not all board members need to be financial experts. However, in order to carry out their fiduciary responsibilities, they need to have a solid understanding of finances — such as reading a financial statement — and know enough to understand when something is amiss financially.
- Duty of Loyalty: Board members must be loyal to the organizations they serve. This involves acting in the best interest of the organization, rather than for their own gain. If there is a conflict of interest, directors are required to disclose it.
- Duty of Obedience: Board members must understand the laws and rules that affect the organization, and ensure they’re followed.
Compliance and Regulatory Responsibilities of the Board of Directors
Compliance and regulatory requirements vary widely by industry. For example, public corporations are bound by the U.S. Securities and Exchange Commission (SEC) rules and requirements. Health care organizations, on the other hand, must make HIPAA compliance a top priority.
Of course, organizations must abide by all compliance and regulatory requirements. A key responsibility of the board of directors is to ensure this is the case.
Environmental, Social, and Governance Responsibilities of the Board of Directors
Increasingly, organizations are under pressure to take action on environmental, social, and governance (ESG) issues. And boards are taking note. Recently, OnBoard surveyed more than 280 directors, administrators, and staff members and found that 76% of respondents indicate their boards are highly or somewhat focused on ESG issues. Yet many don’t know how to approach these issues or evaluate and report their progress.
Boards must make it a priority to integrate ESG into all aspects of board management. An important first step is to create an ESG committee, focused on tackling the ESG issues most relevant to the organization.
Board Meeting Attendance and Participation Responsibilities
As the name suggests, a board meeting is a formal gathering of the board of directors, scheduled on a regular basis — for example, bimonthly or quarterly. At the board meeting, issues are discussed, progress is shared, and decisions are made.
An important responsibility of board members is to attend and participate in board meetings on a regular basis. Consistent attendance helps keep members active and engaged, and it ensures each meeting has a quorum, which is the minimum number of attendees needed to conduct official business.
Of course, unavoidable conflicts are bound to arise. But board members must make it a priority to attend as many board meetings as possible. Typically, the organization’s bylaws include an attendance policy that explicitly spells out how many meetings a member is required to attend.
Board members must also come to meetings prepared and ready to actively participate. This can be challenging for boards that are largely paper-based. Oftentimes, board books and other important documents aren’t distributed until the meeting itself. However, organizations that leverage board management software are able to share meeting materials in advance digitally. That way, board members can prepare in advance and the meeting can be spent having productive discussions and taking impactful action.
Key Responsibilities of Different Board Roles
Typically, individuals hold different roles on the boards they serve, and each role comes with specific responsibilities. Roles — as well as the duties assigned to each role — vary from organization to organization. However, there are a few roles that are common across boards of all types:
- Board Chair: The board chair, frequently referred to as the board president, is the leader of the board — and typically has the most responsibilities. This person works closely with the organization’s leaders to ensure it’s carrying out its mission and accomplishing its goals. The board chair is also responsible for conducting board meetings and ensuring the board is achieving its goals. The board chair also plays an essential role in hiring and supervising the organization’s CEO. They also create committees and appoint committee chairs.
- Vice President: This person, also referred to as the vice chair, is always ready to step in as board president. They may also take on special projects assigned by the board chair.
- Secretary: This person is responsible for the many tasks that ensure board meetings (and boards in general) are effective and efficient. This includes providing meeting notices, preparing agendas, and taking minutes during board meetings, then distributing the approved minutes. In addition, a board’s secretary is responsible for preparing and maintaining various board records.
- Treasurer: The treasurer is typically a financial expert and uses this expertise to monitor and direct finances and prepare the organization’s budget. This person also oversees the board’s finance committee, if one exists.
- Committee Chair: Oftentimes, boards have various committees that are focused on different initiatives. Each committee has a leader, often referred to as the committee chair.
- Director: A director is a member of the board of directors. Directors have various responsibilities based on the committees they’re involved with and the type of organization they serve.
Key Responsibilities of Different Board Committees
Oftentimes, it’s not effective or efficient for every board member to be involved in every board-related matter. This is especially true if the board of directors is large.
As such, boards often have various committees, each with different focus areas and responsibilities. According to a report from BoardSource, non-profit boards have an average of 4.1 committees, and some of the most common standing board committees are:
- Audit and finance
- Governance and nominating
Sometimes, boards also establish ad hoc committees to address a specific goal or need. Once the goal or need has been addressed, the committee dissolves.
Board members are often appointed to committees or volunteer based on areas of expertise, as well as interests. In order to be effective, the American Society of Association Executives (ASAE) recommends board members not serve on more than two committees.
The Bottom Line
The success of an organization depends on its board of directors. But a lot is expected of these directors.
Boards must make it a priority to identify the right members, and then provide them with easy, secure access to the tools and information they need to be most effective in their roles.
Ready to take your meeting agenda and minutes to the next level? Request a demo or a free trial of OnBoard, the board intelligence platform that empowers boards and committees to hold more effective, informed, and uncomplicated meetings.
About The Author
- At OnBoard, we believe board meetings should be informed, effective, and uncomplicated. That’s why we give boards and leadership teams an elegant solution that simplifies governance. With customers in higher education, nonprofit, health care systems, government, and corporate enterprise business, OnBoard is the leading board management provider.