Board Governance

Introduction

In order for an organization to achieve good outcomes, its board should be characterized by good governance. Good governance often includes characteristics such as accountability, diversity of representation in the board room, the ability to develop a consensus view, transparency, application of the rule of law, and understanding that the board bears responsibility to both shareholders and stakeholders. Essentially, boards are complex, but they exist for a simple reasonto ensure an effective organization (Bowen, 2008). This paper will explain why boards are need, what their functions are according to Bowen (2008), what boards should consider in effective governance, what their basic duties are and why they are important, how CEO and board roles relate to effective leadership of the board, the importance of Sarbanes-Oxley, and the important aspects of board machinery.

Why Boards?

Boards are helpful when they are comprised of individuals who provide expertise and guidance for organizations that lack direction, experience, and insight. Bowen (2008) explains that a board can help an organization develop a shared sense of purpose as well as social, economic and political contexts for examining tough decisions that the organization must make. The board represents a collective of responsible agents that can give checks and balances to an organization by supplying judgment and protecting against self-interest.

Additionally, non-profits and for-profit organizations can both benefit from having boards to provide oversight, particularly for regulatory purposes. The corporate form of organization provides certain legal protections, and boards are a requirement for corporate organization. So just for the sake of organizing purposes, the board is a key component for success.

Bowens Five Themes and Eight Board Functions

Bowens (2008) five themes that pertain to board effectiveness are relationships, key skills; investments; differences and similarities between for-profit and non-profit governance; and the rewards of serving on the board. These themes are important to keep in mind when discussing boards because they highlight some of the important aspects of what makes a board work. Specifically, these themes refer to what Bowen (2008) describes as: 1) the relationship between the board and the CEO/president, and why it should be a partnership to be strengthened; 2) why it is important to bring people to the board who have key attributes for effective leadership as well as the courage to act; 3) investing up-front in ways and means that will ensure good and effective governance; 4) understanding how governance of for-profits and non-profits should and should not be the same; and 5) understanding how serving on boards of both for-profit and non-profit organizations can be rewarding.

Boards have a big responsibility in organization because they provide essential functions regarding leadership and oversight. The eight functions that boards provide are: 1) to pick the CEO to lead the organization; provide encouragement as well as advice; make evaluations of the leader, provide compensation, and, if necessary, replace the CEO; 2) provide discussion for and review of strategic directions before giving approval; 3) oversee the monitoring of performance; 4) make certain the organization is responsible and effective in its operations; 5) provide support for policy recommendations and all decisions that are made; 6) to act as a kind of shield or barrier between the CEO/president of the organization and the public, stakeholders, or shareholders; 7) make certain the organization has sufficient human and financial resources for pursuing strategies and objectives; and 8) ensure that suitable candidates are nominated to the board and that effective governance is carried out (Bowen, 2008). The board is essentially there to make sure the organization is as effectively pursuing its goals and objectives as possible. It should be comprised of experienced leaders who understand both the organization itself and the industry. They should also have an understanding of the external environment, such as the political, economic, and social factors that could impact the organizations ability to achieve its goals.

Important Factors for Boards to Consider in Effective Governance

Important factors for boards to consider in effective governance include what Zhao (2010) indicates as the essence of effective governance in the US, which is the separation of ownership and control (p. 495). What this means is that shareholders of the public organization are not able to control the organization so long as it remains public; should it go private, that is another matter. But with respect to public companies the idea of effective governance is that it separate ownership from...

For non-profits, the Act specifically relates to them on the points of whistleblower protection and document retention. These points are the only two in the Act that bear, legally, on non-profits; but on all the other points it is recommended that non-profits adhere to the spirit of the Act by following in the same manner as for-profits on matters of auditing, reporting, etc.

These requirements are helpful for governance because they promote transparency and accountabilitytwo characteristics that were missing from governance in the late 1990s and early 2000s. The case of Enron is a perfect example of how governance got away with hiding fraud and shifting blame onto others. Sarbanes-Oxley has helped to prevent that kind of opaqueness from infiltrating governance.

Aspects of Board Machinery and Their Importance

Board machinery refers to structure and processes (Bowen, 2008). Every board, whether for-profit or non-profit should have committed directors or trustees; however, the type of organization will determine the type of committee the organization will have as a boar. Investment committees may be needed by non-profits with sizeable endowments (Bowen, 2008). For-profits will likely need executive committees. Both might like to have fund-raising committees for various needs. Board structures and processes should be based on needs of the organization, resources, goals and objectives. Beyond that, boards should meet regularly and frequently so that board members are informed and apprised of all that is transpiring in the organization: it is better to be informed and on top of situations than to have to be caught up to speed in the wake of a disaster occurring that could have been prevented with better board oversight.

Conclusion

The board is an important part of the organization because it is there to help the leadership of the organization guide the organization to its goals and objectives. The board should be comprised of experienced leaders who understand the organization and its industry, and who also have connections with the external environment wherein political, social and economic factors can be a particular issue that might affect the organization if not handled with wisdom and care. The board is invaluable…