A board of director has legal authority to make high-level decisions. This includes the hiring and firing of the CEO, overseeing the strategic direction and making sure that the company meets its objectives. This group often consists of ex- and current executives as well as experts and respected individuals who are chosen from the community (called outside directors), and it is also responsible for establishing corporate governance practices.
A well-functioning board is one that has a clear goal and is open to communication, respect for diverse viewpoints and a sense of accountability to shareholders and other stakeholders. It also has independent board members that are free from conflicts of interest and take a long-term perspective on the future of the company. The importance of having a formal orientation, developing relationships with members, and meeting at the right time is paramount.
A good board member is not only smart in business, but also curious. They are able to pose constructive questions to the management and to other board members that challenge their thinking and lead to the most effective decisions. Being a specialist like capital-raising or sales knowledge can be an advantage.
Boards are increasingly taking on more duties, including strategic planning, risk and resilience management as well as diversity and inclusion and technology and digitalization. They must be more technologically knowledgeable, and have a greater part to play in the selection of CEOs and other top leaders. The COVID-19 epidemic has taught boards that they need to be more proactive when it comes to tackling crisis and preparing for uncertainty, according to McKinsey.
