Most directors and executives are very clear that there is a boundary between matters for the board and matters for executives to deal with. Where to place that boundary is more contentious.
A majority of boards would agree that they should stay out of operations and focus on strategic decisions. Defining the difference between a strategic decision and a major operational decision is something that will vary from company to company and from time to time. It is also a topic that can have a board arguing without resolution when there are differing viewpoints.
To help you set an appropriate boundary for your board and management team, we have developed this checklist of questions that will stimulate consideration of the issues. The questions will also help you, as a team, to put your views into context and reach agreement so that you can give management clear direction.
The questions below provide comprehensive coverage across:
- The current delegations and constitution
- The clarity of expectations (for both board and management)
- Any recent issues (either internal or external)
- The importance and novelty of the decision
- The speed of change
- The stakeholders
- The current relationship between board and management
- The relative competence of teams
- Establishing new expectations
The questions are designed to start you thinking about issues that you may encounter. Your answers are not necessarily good or bad; they should reflect the current and desired state of your understanding of the board and its role in your company.
Trust yourself to recognise the most important questions to help you get the best possible relationship with your board and directors.
At the end of the checklist, we have listed some references that you may wish to investigate for additional reading on the topic. We have also included some suggestions for putting into action the ideas that result from considering the checklist.
The current delegations and constitution
1. What are the objects and functions of your company?
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2. What matters are reserved for the members (shareholders) under the constitution and what are reserved for the board?
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3. How can the board consult stakeholders and ascertain preferences or interests that would be useful in reaching decisions?
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4. What instructions does the board wish to give management (or their external consultant) about questions to ask or areas that may be sensitive?
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5. Does the constitution have any specific provisions about the role of the board in operations? Can the board freely choose what to delegate or are there limitations?
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6. Do your current delegations set only financial thresholds (in which case you may need to improve them) or do they consider the impact of decisions on the company?
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7. What is the current delegation for making strategy? Is it done by the board, done by management within a framework and vision set by the board, done in partnership with management, or done by management and endorsed by the board?
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The clarity of expectations
8. Have the board discussed the types and frequencies of information they wish to receive?
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9. Is management in possession of examples of suitable ‘board level’ papers and presentations and, perhaps, some that are too detailed or ‘managerial’?
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10. Are directors informed of the right level of information during induction[1]?
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11. How often does the board meet? Is this often enough to provide strong oversight but not so often that directors delve into the day to day issues?
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12. Are there ‘standing instructions’ about the novelty or impact of decisions that should be elevated for greater board involvement or do you prefer to deal with each issue as it arises?
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Any recent issues (internal or external)
13. How often does the board meet? Is this often enough to provide strong oversight but not so often that directors delve into the day to day issues?
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14. What are the four or five key things that the board is focused upon at the moment? Are these things reported more frequently and in greater detail than other items on the board’s annual and meeting agendas?
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15. What issues is management grappling with at the moment? Have these issues been raised with the board as items where management would welcome a closer engagement?
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16. What is happening in the company’s external environment? Are there any issues that management would like the board to consider more closely?
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The importance and novelty of the decision
17. Is this decision large enough to transform or radically alter the company and its prospects?
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18. Does the decision change the ownership structure of the company? If so, the board should take the lead in making the decision.
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19. Does the decision involve a significant change to the financial structure of the company? If so, the board should take the lead in making the decision.
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20. Have you made a similar decision in the past? If so, was it made by the board, by board and management, or by management and endorsed by the board?
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21. How frequently do decisions of this type or magnitude occur? If they are starting to arise more than once or twice a year, consider increasing delegations to allow management to take more responsibility and make larger decisions, it may be a sign that you have grown.
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22. What is the timeframe needed to implement the decision? What timeframe is needed to see if the decision has been implemented successfully?
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The speed of change
23. How quickly is the topic of the decision evolving?
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24. Is the direction and trend of change clear or are you dealing with a single discrete decision that does not easily fit any discernible trend?
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25. Are any other companies in your sector making similar decisions? Do you know, or can you find out, how those decisions are being made?
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26. Are you trying to establish a leadership position within your sector or are you moving to adopt established practices?
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27. Have you seen a potential for leap-frogging the competition or moving into ‘blue ocean’?
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28. Is your current practice and decision-making process exposing the company to excessive risk? Are you changing because continuing as you are is going to lead to disaster?
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The stakeholders
29. What internal stakeholders are impacted by the decision or issue? Will this impact their ability to perform their duties for the company?
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30. What external stakeholders are impacted by the issue or decision?
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31. Do the impacted stakeholders have the power to require board attention?
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32. Does the size of the impact warrant board attention to the issue?
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33. Who should the board consult about the issue or decision? Who should they keep informed?
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34. Does the company rely on any stakeholders in order to achieve its aims or are they within the company’s power?
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The current relationship between board and management
35. How would you characterise the nature and quality of the relationship between board and management?
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36. Do you trust management to elevate appropriate issues to the board or is direction required?
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37. Does management trust the board to help resolve issues rather than cast blame?
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38. What needs to be done to improve the relationship between board and management?
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The relative competence of teams
39. Is management bringing these decisions to the board because they feel uncomfortable taking them?
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40. What are the precedents for the decision to be taken at this level? Do you want to retain the current precedent or set a new one?
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41. Is the decision in an area where the board has a strategy of developing management’s capability? Does the board feel that management’s capability has reached a level where the board can confidently delegate to management?
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42. Are there signs that management is failing and needs the board to step in?
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43. Does the previous experience of the board encompass the expertise required for this decision?
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44. Is the decision in an area where management has greater skill and experience than the board? How will you ensure that the board has enough information to understand what they will eventually be asked to endorse?
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45. Have the board made similar decisions in the past and gained confidence that they now have a process for evaluating and making the decision that can be given to management for use without involving the board?
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46. Is the decision in an area that the board has identified as one for the directors to recruit or develop skills? Is the acquisition of capability proceeding at a pace that will allow the board to make the decision when it is required?
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47. Do the board have the time to meet as often, or for as long, as required to responsibly make the decision?
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48. Does management have the resources (money, time, or external support) to allow them to make this decision?
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Establishing new expectations
49. How have decisions of this magnitude or type been taken in the past? Can you clearly explain why these decisions now need to be taken in a different manner? How will you inform the CEO of the need for change?
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50. How cohesive is the board around the need for the decision to be taken in the manner that you have decided is best? What needs to be done to ensure that the directors continue to support the decision being taken at that level?
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51. Where will you document the new arrangements? How will you communicate them so that everyone who needs to know will have the information in a timely fashion?
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52. Does the decision need to be disclosed to stakeholders outside the company? Are there any new communication processes or protocols required?
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Taking action
Read the questions and note which ones you can confidently answer. Make a record of any actions that you wish to take to help answer any questions that you were not confident about.
The best time for reviewing the ‘line’ between management and the board is at a regular review of delegations. However, the most common time for reviewing this is when a decision becomes necessary and there is contention about where it should be made. Sharing these questions with your board will help you to reach a consensus on where and how to make the decision.
When you have reached board consensus make sure that you document and communicate changes in a consistent fashion until they become established as the new status quo.
Additional reading and reference sources
Boards that Lead, Ram Charan, Mike Useem and Denis Carey
Governing in Scary Times, Debra Brown, David Briwn, and Rob Derooy