What is the True Role of Your Board of Directors?

Under the Board governance, we understand the specific managerial relations in corporations; that is, in organizations, one of the important features of which is the separation of ownership from management. Check what the true role of the Board of Directors in the article below is.

The Board of Directors as an Element of Corporate Governance

The Board of Directors is the element of corporate governance on which the relationships between the participants in corporate governance and key decisions largely depend. To identify the role and significance of the board of directors, it is necessary to clarify the interpretation of the concept of “corporate governance” used since this term is not always used correctly in the literature and is often identified with the general management system at any large enterprise.

An effective Board of Directors is a key link in an effective corporate governance system. The effectiveness of the company depends on what tasks the Board sets for the management, what questions it asks during meetings, and how carefully it checks and analyzes the information received from the management.

The Board of Directors, by virtue of its inherent role, is the main link in the company’s corporate governance system. The main functions of the Board of Directors are traditionally considered to be strategic management and management control. This applies to any board, whether it be a private company or a company with state participation.

The Main Role of the True Board of Directors

One of the successes of effective Board management is the presence of a strong and independent board of directors, which will allow forming the company’s strategy, ensuring control over its observance, and impartially assessing the company’s performance.

The true role of the Board of Directors:

  • determines the main principles and approaches to the organization of the risk management and internal control system in the Company;
  • controls the activities of the executive bodies of the Company and the execution of decisions of the General Meeting of Shareholders;
  • ensures the protection and implementation of the rights of shareholders;
  • determines the main parameters of the business plan, controls its implementation and management system for controlled companies, and also makes decisions on key projects and significant transactions.

Specific management relations inherent in corporations and not characteristic of other forms of business organization are relations between managers and shareholders, relations between different groups of shareholders (between insiders and outsiders, between minority and majority shareholders), and management relations in connection with the attraction of financial resources through issue and placement of shares, in connection with the exercise of control over the share capital, payment of dividends, etc.

Main Functions of the Board of Directors

The Board of Directors, by virtue of its inherent role, is the main link in the company’s corporate governance system. The main functions of the Board of Directors are traditionally considered to be strategic management and management control. This applies to any board, whether it be a private company or a company with state participation.

The board of directors, as a body, is called upon to resolve the contradiction caused by the separation of the functions of ownership and management in a joint-stock company through control over the activities of the executive body. A director’s career depends on the right goal-setting, positioning, and a well-thought-out strategy for working with stakeholders and employers.

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