Boards have come up a lot recently; I'm expecting to rejoin the Mission Research board, the School Board is reorganizing in a week or so, I've advised a few startups on board management, and my wife just asked me about boards because of something she's involved in.
Here's my take from my limited point of view, having served on maybe 10 boards:
- Board members are either there by agreement or by election. Agreement can supercede typical rules, meaning an investor might ask for a perpetual board seat regardless of future % of ownership. The only downside to that is that sometime in the future the tail might be wagging the dog, when that member represents a relatively small % of ownership.
- Board members have both authority and power. Their authority is limited to what happens in the context of board meetings: discuss, make motions, second motions, and vote.
Their power is what they are able to get people to do simply because they are board members and people listen to them, and assume they have more authority than they do.
It's very rare that a board member will bring up a motion to specifically ask the board to force a school to clean up trash around the school, but it's not rare that a board member will point out trash and the school takes care of it.
- Organizational leaders report to the Board; the board is their boss, collectively. Individual board members can not (and should not, though they do) direct the leader to do anything, or imply consequences if they don't. This is a tough one for board members, because frequently things will come up outside of board meetings, and you bring it up to the leader, and the leader says "I'll take care of it". That can be problematic if the majority of board members would have voted against it, or if the thing is not something already expected. (like running a clean school)
- Board Chairs technically have no additional authority beyond opening meetings, moderating meetings, and closing the meetings, unless the Board votes on a specific, limited set of powers and responsibilities.
The chair of one Lancaster nonprofit a few years ago absolutely abused his power and micromanaged the executive director, taking on a large swath of the director's duties. Fortunately the board was able to hold him off a bit and once his term was up the new chair did a much better job of supporting the ED.
- Board members have fiduciary responsibility, meaning they are technically responsible for everything that happens, from treatment of employees to management of funds. This means you can be sued. Public board members are typically protected, but private board members should ensure that the org has D&) insurance (directors and officers). That insurance will cover bad outcomes, but it won't cover the drain of time and energy it has on sued board members
- Boards can and should have "executive sessions", where the leader does not participate. This gives the board the chance to discuss the organization without the influence or reaction of the leader, and in some cases, to discuss the leader as well. I was never comfortable with this as a leader, because frankly it sucks to have people talk about you and your effectiveness, but it's healthy for the organization and good for the board.
- Some board members are leaders; most are not. The ones who are not need to own their voices. You're in the seat, you accepted the role, and you need to voice your views--it's the responsibility that comes with the title.
- Boards should be careful not to micromanage and not get in the way. Key hires at an executive level, for example, should be approved by the board, but that's it. In a school district this means that principals but not teachers; in a company it means a VP of Marketing but not a marketing manager; in a nonprofit it means the director of development but not the program manager.
- For public organizations, board meetings should always be in public, and you should be very careful about manipulating the public by discussing what is typically expected to be public under the guise of exemptions under Sunshine laws. For example, most personnel issues can't be discussed in public; discussing education policy and ideas during what's labeled a personnel meeting is a violation of Sunshine laws.
- For private organizations, there's no expectation of Sunshine. My opinion, though, is that if you're taking public money, your obligation to the public is to be entirely transparent about the use of funds, plans, ideas discussed, etc with respect to that public money. All other stuff is really at the organization's discretion.
Some nonprofits are quasi-public organizations, serving what is typically considered a public role but under the veil of private organization. LCSC and CAP are two local firms like that.
- For private companies, you have to be careful about what you share and what you don't. There's a line between discretion, disclosure, and ethical disclosures. If the company is going to be acquired, some companies like to disclose that to employees, and others like to keep it under wraps.
Disclosure helps because the M&A process creates stresses on management which are palpable; employees can misinterpret (and they will try to interpret) that obvious stress. But disclosure can also impact employee behavior. I'm on the fence about disclosure to employees; some transparency is good, but some employees can't handle the information.
- Election of board members is typically prescribed by the articles of incorporation or the charter. Most public board members are elected, not appointed.
- Nonprofit boards should have selection committees to help develop a board and keep it fresh. They should have term limits, and develop a set of profiles of the types of board members they'd like, then make lists of potential people that meet those profiles. "I know a guy" is not a recruitment strategy (though sometimes that guy is a great choice).
- For-profit boards are typically elected by shareholders on a pro rata ownership basis, meaning that shareholders can vote some or all of their shares toward a specific board nominee. Nominations can be made by any shareholder (fairly certain), and the company is typically mandated by law to hold annual shareholder meetings at which time votes are held. Majority shareholders may not necessarily want to sit on the board because of time commitments, liability, or other reasons, and may vote their shares in favor of a nominee (typically their own selection).
- Board members typically don't understand their roles, the rules, or how they can help or hinder an organization. Responsible boards will have an orientation and provide new board members with a year or two of board minutes, agendas, and financials, and assign the new member a mentor on the board.
- Boards have ultimate responsibility for the direction and outcome of the organization. In my experience, few boards take this seriously enough. Too few board members participate in a meaningful way, too few express their opinions and share insights. Many boards are driven by one or two people, while the rest simply show up, pipe in on occasion, and list it on their LinkedIn profiles.
I've had major impact on almost all boards I've served on (not always positive, mind you), and I've quit several boards because I was no longer able to participate well or my participation was ineffective. I'll keep up that practice--it's better for the organization to keep the noise to a minimum, and productive participation to a maximum.
There are lots of other opinions about boards, and you should certainly research board governance if you serve on one.
With this off my plate, I feel free to start looking for board members for my new startup...hey, I know a guy who...