Board of Directors’ Responsibilities? 4 Signs of a Dysfunctional Board
Companies have a board of directors in place to assess its overall direction and strategy. The board of directors’ responsibilities include overseeing, evaluating and compensating the CEO, providing the mission, vision and goals of the company, developing a governance system and protecting the organization’s assets and investor interests.. The board of directors’ responsibilities, however, do not include interfering in the execution of strategic plans. They vote on the best strategy for the company but the duty of carrying it out is handed over to the managers.
If the board is not fulfilling its duties nor following the guidelines, the company could be faced with a dysfunctional board. Since decisions made by the board have a higher level of impact and affect the overall structure, a business can suffer a severe blow if the wrong decisions are made.
4 Signs of a dysfunctional board
To ensure that your company doesn’t fall off the rail, there are some signs you can look out for. Once you have identified a board member who is not fulfilling their board responsibilities, you can have him or her removed and replaced with someone who can.
There are four major signs indicating a dysfunctional board in a company. Having any one of these signs, is enough to set off a red alert.
Not following the mission statement
A company which does not make decisions in line with its strategy is bound to fall behind the competition and suffer a loss in income. Maximizing shareholder value counts as one of the most important things to be prioritized in board meetings. If a board is not focused on increasing numbers then it may have perhaps lost sight of the company’s goals and objectives.
There are no disagreements or challenges
Everybody likes to work in harmony. But too much harmony and peace on a board of directors can actually be a warning sign. “If there is no disagreement or there are no challenges going on in there then you’ve got the wrong mix,” says Ginger Silverman.
Ginger has served on advisory boards and boards of directors for private, public and non-profit companies including Norco Delivery Services, IVIU technologies, Cutagenesis, Oroscience, and Susan G Komen. She is a 25 year veteran specializing in marketing and regeneration.
According to Ginger, one of the biggest traps you can fall into is hiring people like yourself. A board of clones will fulfill their board of directors’ responsibilities but won’t bring new ideas to the table. It is normal for businesses, especially family owned businesses, to get comfortable in their way of running things which tend to narrow their vision. Bringing in outside directors is a great way to bring in fresh knowledge and experience. An effective board is one which has a mix of different “experiences and expertise that can give a holistic look at the company and plan for the company.”
When there are no action plans
Good board meetings result in many action items but that will only happen if the board members come to the meeting prepared. It’s alarming when there’s a lot of discussion and no outcomes, no direction, no action items or no decisions made by the end of the meeting. A sign of a dysfunctional board is when the directors cannot agree upon anything nor make strategic decisions. Ginger said, “To be a successful board, there needs to be real strategic conversations going on and action plans coming out of it.” Yet this will only happen when everyone is engaged and prepared to discuss the issues.
Conflict of interests
It often happens that a board member is a director on more than one board of directors in different companies. In its rules and regulations for the board of directors’ responsibilities, the FCC has said, “Inform the Board of Directors of any direct or indirect conflict of interest he may have with the Company. In the event of such a conflict, the director in question must not participate in the transaction giving rise to the conflict except where expressly authorised to do so by the Board of Directors.”
If an occasion arises where a director has a conflict of interest with another board they are serving on, they should inform the board. Typically in such cases the director is not allowed to sit in on those meetings or vote; or in extreme cases is entirely removed from the board.
One should also be aware of directors who may be self-serving or have little to no interest in the company. If there are reasons to be suspicious then the member can be removed if they do not do so voluntarily. Ways to remove a board member include a personal intervention by the Chairman, term limits and impeachment by a two-thirds vote of the board. The company should be careful to always handle the removal of the board member in a professional manner.
The CEO and the success of a company relies greatly on a highly functioning board that can provide great insights, debate and support. Too much is at stake to not remedy any of the above situations immediately.
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