How to understand what a board is

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How to understand what a board is

You are considering going on a board? Or you are on one and would like to get a good overview of what a board is? This how to is for you.

The board of an organisation is its governing body. It decides what an organisation exists for (its purpose) and makes the plans about what the organisation will do and how it will do it.

The board is made up of a group of individuals, known as directors, who are responsible for ensuring that an organisation fulfils its purpose.

The board makes the plans (the strategy) and usually appoints a paid person (called executive officer, manager, coordinator, CEO, or similar title) to put that strategy into action.

A key role of the board is to develop the rules - the constitution. The constitution is a set of rules that explains how the board will be set up, what it must do and how it will operate. It includes rules about the appointment, removal and powers of directors and how and when meetings will be run.

What does a board do?

The board has the ultimate decision-making authority for the organisation.

The board must:

  1. Define the purpose and culture of the organisation and how it will fulfil that role so that management, staff, stakeholders and clients understand why the organisation exists and how it, and its employees, will behave
  2. Set the organisation’s policy, objectives, and plans for the future, that is, the strategic direction
  3. Develop and maintain the constitution (or rules of association) that determines how the organisation is structured and governed, and how it operates
  4. Appoint members of advisory, executive, finance, and other committees and working groups, and determine the roles, duties and reporting processes for those groups and committees
  5. Ensure that the organisation is operating legally and ethically and complying with all rules relating to solvency, risk, reporting, health and safety, etc
  6. Hire, monitor, evaluate, and dismiss (if necessary) the executive officer and, in some cases, other senior executives
  7. Decide on the pay, terms of employment and key performance indicators of the executive officer or any person paid to run the organisation on behalf of the board
  8. Develop management ‘delegations’. Delegations tell the appointed officers exactly what they can do on behalf of the board, such as how much money they can commit the organisation to spending or what responsibilities they have for employing staff.

Members of the Board

The people who make up the board are called directors (or board members).

The directors are elected by members of the organisation, usually at the annual general meeting (AGM), to govern the organisation and look after the interests of members or clients.

Directors of small and medium sized not-for-profit (NFP) organisations are usually volunteers. Directors of some large NFP boards might receive sitting fees or have travel expenses paid.

The number of directors and the length of time they serve (their term) varies. Some organisations have four or five directors, while others have more than ten. That number will be influenced by the type of organisation and the number of directors needed to work on sub-committees and working groups. Usually directors serve one or two terms and then move on so the board can bring people with new skills and ideas into the organisation.

In some cases, potential directors may be invited onto the board by existing directors. This is most likely to occur when a board has a need for specific skills that current directors do not have, for instance, it may need a director with legal, accounting, human resource management, or marketing skills.

The process for electing, appointing and removing directors is explained in the organisation’s constitution, which is developed by the board.

Identifying Directors

Effective boards decide the types of skills that they need to lead their organisation, fulfil fiduciary (see below) and legal obligations, and oversee the agreed strategy and plans.

Your fiduciary obligation means that, as a director, you must respect your duty of ensuring the well-being of the organisation. Every decision you make as a director must be to achieve the best outcomes for the organisation and its staff and clients.

It is inappropriate for a director to join a board solely because they have personal relationships with existing directors or because they or their families use the services of the organisation.

Directors should only be on boards because they bring professional and technical skills needed to govern that organisation. They have to commit time to learning about the organisation, how it operates and what its clients need.

The board should be diverse in terms of the age, gender, ability and cultural backgrounds of directors. Boards are more effective when they have directors from a range of personal and professional backgrounds.

Legal obligations of directors – every director is equally responsible

The legal obligations of directors on not-for-profit organisations are the same as those for directors of any commercial and corporate organisation.

Every director is legally obliged to ensure that the organisation has sufficient funds to fulfil its financial commitments (it is solvent), that it operates in a compliant and ethical manner, and that it protects the safety of its staff, clients and other stakeholders.

While some directors may have formal expertise in specific professions, like accounting or law, every single director is equally and legally responsible for decisions made by the board. A director cannot pass their responsibility to fellow Directors if they do not fully understand the issue being decided.

Directors should understand their obligations and educate themselves to ensure they are aware of the changing rules and regulations affecting the roles of directors in Australia.

All directors are required to understand work health and safety (WHS) matters. They are responsible for making sure that their organisation has adequate systems and processes to ensure the health and safety of its employees, and other workers, including contractors, sub-contractors and their staff.

The organisation should have processes to help educate board members about these responsibilities.