An efficient board of directors is focused, empowered, and effective. Read on to discover our 5 tips for creating an efficient board of directors:
Tip 1: Ensure Your Board Director Requirements are Effective (and being followed).
Your corporate bylaws will contain requirements outlining the requirements for electing board members. Often, these include requirements for those elected to the board of directors to own a certain number of shares in a company, to be involved in the organization in some prescribed way, or similar. Additionally, there are existing legal requirements in California for boards of publicly held corporations to include members of certain demographics, including female directors and directors from other minority communities. It is essential that the legislative requirements and the bylaw requirements are followed, closely.
It’s not uncommon for companies to loosely follow the bylaws that contain the rules for electing board members. While this informal approach may seem expedient, the consequences that may follow if an ineligible board member has been elected to the board can be expensive and time-consuming.
Tip 2: Ensure Your Board of Directors Know and Understand What Their Role Entails.
We often see managers asking the board for permissions for management decisions, like renewing technological contracts, hiring non-executive employees, and similar. An efficient corporate board is tasked with governing the company, not making management decisions (like those relating to logistics, compensation, personnel, and routine operations).
The first step to overcoming this common mistake is to ensure that corporate documents are drafted carefully to promote efficiency and effectiveness. The bylaws should task the board with making essential and important long-term operational decisions. Anything in addition to this should be carefully considered before being included as a board-level decision in the bylaws.
Secondly, it is important that the board is clear on what its role is and what it entails. The board should be ready and willing to say ‘no’ if it is asked to make decisions outside the scope of its decision making powers. Equally, management should be clear on which decisions fall within their purview and which decisions should be deferred to the board.
Tip 3: Ensure Your Board Presents a United Front When Decisions Have Been Made.
The directors on your board should be encouraged to passionately present their case whenever decisions are yet to be made. Diverse opinions support innovation and growth, making them a significant benefit for boards. Thus, it’s important that your board culture promotes openness, deliberation, and mutual respect for differing opinions. However, you should be careful to also promote a board culture that respects that the appropriate time and place to express those opinions is in the board room.
Importantly, after the decision has been made, your directors should know and understand that they should present a united front about the decision. Outside of the board room and following a decision, their dissenting opinion has the capacity to create rifts, drive conflicts, and encourage inefficiencies. By creating a culture where board members are expected to present a united front once decisions have been made, you can reduce the risk of (or avoid) these negative consequences.
Tip 4: Encourage Your Board to Actively Participate.
Your board should be encouraged to be active participants, not just figureheads. Two methods of achieving this that we commonly see are by implementing routine individual director assessments and by drafting bylaws to promote participation.
When implementing individual board member effectiveness assessments, you should ensure your assessments consider:
- Meeting attendance.
- Preparation, including whether they have read the executive summary in advance of the meeting.
- Active participation during meetings.
- Their ability to communicate well with others and express opinions and ideas clearly.
- Willingness to listen and respect for differing viewpoints.
In terms of drafting company bylaws to promote active participation, two common mechanisms we see are term limit provisions, which require board members to be re-elected at set intervals, and the creation of senior emeritus positions. Emeritus directors can be invited to stay on the board to advise and participate, while freeing up a seat for a new board director. These positions are typically reserved for long-serving board members who are being transitioned off the board, or retiring from active board duties.
Tip 5: Leverage Technologies to Streamline Board Management.
A simple way to promote efficiency is to ensure your board always has easy access to key documents and records. Whether you elect to implement a board management system or rely on something lower-tech, like a shared cloud drive, it’s important that the board can easily find and store the following documents:
- Documents pertaining to upcoming board meetings, including the agenda, timeline, and executive summary.
- Compliant minutes of past meetings.
- Corporate documents, including the company bylaws.
- Financial reporting.
- Other relevant reports.
- Vision and strategy documents.
As an aside, your board should also leverage technologies that keep the company they’re representing safe. Communications between board members should be encrypted, and any documents signed electronically should rely on industry-leading protections to ensure the veracity of the signatures.
If you’d like to update your company bylaws or if you’re looking for legal counsel dedicated to driving an efficient board of directors, reach out. We’d love to help!
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