CASS NVC - The Role of the Board

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  • CASS NVC - The Role of the Board

    1. 1. The Role of the BoardNew Venture Creation Programme, 2011Matthew Bickertonbickerton.cc/blog/cass-nvc © 2011 Matthew Bickerton Licensed under a Creative Commons Attribution 3.0 Unported License. 1
    2. 2. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 2
    3. 3. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 3
    4. 4. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 3
    5. 5. What is a board• The Board ≡ Board of Governors, Board of Trustees, Board of Regents …• Usually roles and duties defined by external authority - Bylaws• Members chosen by: ‣ Stockholders ‣ By the members, or their delegation ‣ Sometimes by the board itself 4
    6. 6. What is a board• Oversimplified, but a common approach: ‣ The “Company”, “Shareholders General Meeting” & “Board of Directors” are 3 distinct entities ‣ Who has what powers is defined in a set of articles ‣ Power to manage company vested in the board of directors alone ‣ Only way for shareholders to control company is by varying the articles or refusing to re-elect directors 5
    7. 7. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 6
    8. 8. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 6
    9. 9. The duties of a board• These differ greatly between different organisations• A group legally charged with the responsibility to govern an organisation ‣ For-profit : responsible to shareholders, or more radical, responsible to stakeholders ‣ Non-profit : responsible to members or some objective 7
    10. 10. The duties of a board• Provide continuity for the organisation ‣ Creating a corporation or legal existence ‣ Represent the organisation• Appoint & review a CEO ‣ Delegate responsibility for administration of the organisation to them ‣ Review, offer guidance or dismiss the CEO 8 Brenda Hanlon, in In Boards We Trust
    11. 11. The duties of a board• Govern by setting broad policies, objectives & priorities ‣ Ensure chief executive and employees agree ‣ Undertake regular reviews• Acquire sufficient resources & finance for organisation• Provide, to the stockholders or public: ‣ Fiscal accountability, approve the budget, and formulate policies related to contracts ‣ Responsibility for all conditions and policies attached to products & services• Appoint a suitably qualified company secretary (not now necessary for privately owned UK companies) 9 Brenda Hanlon, in In Boards We Trust
    12. 12. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 10
    13. 13. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 10
    14. 14. The structure of a board• Chairperson• Directors ‣ Employee, officer, major shareholder, representative of other stakeholders (Unions) ...• Non-executive Directors ‣ Only serves on the board & has no other involvement in organisation• The composition of the board is controlled by law in many countries• Strongly suggest you consider using non-executive directors from early in a start-up 11
    15. 15. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 12
    16. 16. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 12
    17. 17. Directors duties• Individual directors duties are defined in law ‣ The UK, Companies Act 2006 ‣ Directors have a personal duty to deliver accounts, annual returns and notices of changes to Companies House ‣ £5,000 fine for the director & the company will be punished as well ‣ Please take legal advice ‣ http://www.companieshouse.gov.uk/about/pdf/gba1.pdf 13
    18. 18. Who can not be a director• An ‘artificial person’• A disqualified person: ‣ Did not keep appropriate accounting records ‣ Did not met their obligations to Companies House ‣ Failed to pay taxes which the company owes and/ or failed to submit the appropriate returns• An undischarged bankrupt 14
    19. 19. Directors duties ‣ Must act honestly, in good faith and for proper purpose ‣ Need to be able to prove that at all times they have considered the interests of the company ‣ Unfettered discretion, the directors cannot bind themselves to vote in a particular way in the future - the company can enter into contracts but not the directors ‣ No conflict of duty and interests, although in some countries this can be overridden by the company ‣ Must not, without consent, use corporate property, opportunity, or information for their own direct gain ‣ Common law duties of care and skill 15
    20. 20. Guidance for directors ‣ Act in the companys best interests, taking everything you think relevant into account ‣ Obey the company’s constitution and decisions taken under it ‣ Be honest, and remember that the companys property belongs to it and not to you or to its shareholders ‣ Be diligent, careful and well informed about the companys affairs. If you have any special skills or experience, use them ‣ Make sure the company keeps records of your decisions ‣ Remember that you remain responsible for the work you give to others ‣ Avoid situations where your interests conflict with those of the company - when in doubt disclose potential conflicts quickly ‣ Seek external advice where necessary, particularly if the company is in financial difficulty http://www.bis.gov.uk/files/file40139.pdf http://www.companieshouse.gov.uk/about/pdf/gba1.pdf 16
    21. 21. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 17
    22. 22. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 17
    23. 23. Your Exposure• Legal ‣ Compliance and good governance ‣ Criminal charges - The capsize of The Herald of Free Enterprise, Paddington/Hatfield train crashes ‣ Corporate manslaughter convictions may become a possibility ‣ "I was just following the rules, dont blame me" does not work well in the Boardroom! 18
    24. 24. Your Exposure• Financial ‣ Can easily end in court ‣ Limited liability is essentially a shareholder protection ‣ Will not protect directors from litigation for damages ‣ Indemnities in service contracts vital - to limit corporate failure ‣ Nothing to protect directors from fraud or trading when illiquid 19
    25. 25. Your Exposure• Personal ‣ Reputation is on the line, failure can have a very high cost ‣ Reputation is a very powerful tool in boardroom, difficult to repair ‣ It’s safest to assume accountability for directors is TOTAL and there are no hiding places! 20
    26. 26. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 21
    27. 27. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 21
    28. 28. How an effective board works• As a collective ‣ Objectivity and Independence, a personal requirement ‣ Fidelity and accountability, a collective responsibility ‣ Reconciling this can be very hard! 22
    29. 29. How an effective board works• Accept the concept of TOTAL accountability, this has critical implications for directors behaviour: ‣ Willingness to resign immediately without compensation on matters of performance/principle• Present views of board, even if not personal views• Accept responsibility for actions of organisation, even if you had no direct involvement ‣ Executives can punish subordinates for failure ‣ Directors must accept the responsibility for failing to create an environment that delivers success 23
    30. 30. How an effective board works• To take a strategic perspective ‣ Positioning organisation for future advantage ‣ Deep understanding of both internal and external affairs ‣ Usually strategic issues require resolving issues outside the direct control of the organisation for which you may have little direct influence ‣ … 24
    31. 31. How an effective board works• To take a strategic perspective (cont.) ‣ Establishing options ‣ Understanding impact of predictable and surprise events - what-if, best/worst case ‣ Strategic concepts do not always have a tangible output - but can be critical 25
    32. 32. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 26
    33. 33. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 26
    34. 34. Trust and creating a corporate culture : 1 • Boardmember required to make independent contribution based on; honesty, objectivity and best judgement - in a framework of collective responsibility • This needs a bond of trust • Trust is the result of a consistent, natural and constant pattern of ethical behaviour in the boardroom … 27
    35. 35. Trust and creating a corporate culture : 2 • Ethical behaviour ‣ is the result of adopting a value system which is honest and legal ‣ It has to override short term opportunism • This value system is the basis for the corporate culture - vital and a major contribution to the organisation’s success … 28
    36. 36. Trust and creating a corporate culture : 3 • This value system is the basis for the corporate culture - vital and a major contribution to the organisation’s success • Corporate culture is formed in the boardroom 29
    37. 37. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 30
    38. 38. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 30
    39. 39. How to be an effective director• Leadership• Guide by persuasion• Articulate an argument for action - so compelling others will see its merits and be prepared to act on it• Leadership is abdicated when authority is used 31
    40. 40. How to be an effective director• Overcome tendency to assume primary role is to represent best interests of their function on board• Vital to become familiar with all aspects of of the business• Perusing narrow agenda on board is a major source of conflict and ineffectiveness 32
    41. 41. How to be an effective director• Trusteeship ‣ Active role looking after a portfolio of responsibilities ‣ Not an executive role ‣ It does not infer authority - not like any retained executive responsibilities• Stewardship ‣ Serve the best interests of organisation at all times and pass it on in better shape than when inherited• Stewardship = Trusteeship in non-profit, much more demanding ‣ Henry Kissinger: "the politics in academia are much more vicious, as the stakes are so low" 33
    42. 42. How to be an effective director• Constructive compromise• Ideally surprise events should hit the boardroom first ‣ The role of the board is to understand uncertainties ‣ Resolve ambiguities ‣ Balance conflicting issues 34
    43. 43. How to be an effective director• Evidence ‣ Very hard to acquire ‣ Months of analysis can result in nothing more than an understanding of the weaknesses of the team who undertook the collection ‣ Hearsay is dangerous!• Loyalties will be tested in a boardroom• Uncertainty is managed in a boardroom• Drawing valid conclusions separates the wise from the fools 35
    44. 44. How to be an effective director• Conflict of interest demands recognition and resolution• Compromise ‣ Well researched, factual & transparent ‣ Constructive compromise is the primary tool ‣ Agreed action is the output ‣ Only changed by new information/evidence ‣ Compromise is susceptible to conscious and unconscious abuse 36
    45. 45. The Role of the Board 37
    46. 46. The Role of the Board 1. What is a board 2. What are its duties 3. The Board structure 4. Your duties as a director 5. Your exposure as a director 6. How an effective board works 7. Trust and creating a corporate culture 8. How to be an effective board member 9. How to transition from Executive to Director 37
    47. 47. Challenges of New Board Membership• No shallow end to practise in• Behaviour more important than technical competence• Authority comes from sound judgement and wining influence, not status Scanlon, S. & Schneider, S. (2011). The Board Game, London: LID Publishing Ltd. 38
    48. 48. From Executive to Director• How you maintain authority ‣ from your position Executive ‣ from your resources ‣ from your reputation & respect Director ‣ from your objectives 39
    49. 49. From Executive to Director• How you maintain authority ‣ from your position Executive ‣ from your resources ‣ from your reputation & respect Director ‣ from your objectives 39
    50. 50. From Executive to Director• Your responsibility ‣ Is to the Board Executive ‣ Is to the Shareholders Director ‣ Is to the Stakeholders/Members 40
    51. 51. From Executive to Director• Your responsibility ‣ Is to the Board Executive ‣ Is to the Shareholders Director ‣ Is to the Stakeholders/Members 40
    52. 52. From Executive to Director• You have the power to: ‣ Command Executive ‣ Influence Director ‣ Represent 41
    53. 53. From Executive to Director• You have the power to: ‣ Command Executive ‣ Influence Director ‣ Represent 41
    54. 54. From Executive to Director• Your position: ‣ as a Senior Executive Executive ‣ With extensive support ‣ Always answerable ‣ as a New-Kid-on-The-Block Director ‣ With minimal support structure ‣ Always responsible 42
    55. 55. From Executive to Director• Your position: ‣ as a Senior Executive Executive ‣ With extensive support ‣ Always answerable ‣ as a New-Kid-on-The-Block Director ‣ With minimal support structure ‣ Always responsible 42
    56. 56. From Executive to Director• Your primary skills are: ‣ to be decisive Executive ‣ using analysis ‣ to exercise judgement Director ‣ using argument 43
    57. 57. From Executive to Director• Your primary skills are: ‣ to be decisive Executive ‣ using analysis ‣ to exercise judgement Director ‣ using argument 43
    58. 58. From Executive to Director• Your focus is on: ‣ Task Executive ‣ Tactics & corrective actions ‣ Effective/Efficient resource deployment ‣ Role Director ‣ Strategy & preventative actions ‣ Stakeholder value 44
    59. 59. From Executive to Director• Your focus is on: ‣ Task Executive ‣ Tactics & corrective actions ‣ Effective/Efficient resource deployment ‣ Role Director ‣ Strategy & preventative actions ‣ Stakeholder value 44
    60. 60. From Executive to Director• Your style is: ‣ Interventionist & action oriented Executive ‣ Competitive ‣ more team oriented ‣ Reflective Director ‣ Collegiate ‣ more independent minded 45
    61. 61. From Executive to Director• Your style is: ‣ Interventionist & action oriented Executive ‣ Competitive ‣ more team oriented ‣ Reflective Director ‣ Collegiate ‣ more independent minded 45
    62. 62. From Executive to Director• The big challenges: ‣ failing to maintain confidence Executive ‣ becoming to politically motivated ‣ failing to suppress interference ‣ failing to convince Director ‣ retreating into functional comfort zone ‣ unwilling to be responsible for the actions of others 46
    63. 63. From Executive to Director• The big challenges: ‣ failing to maintain confidence Executive ‣ becoming to politically motivated ‣ failing to suppress interference ‣ failing to convince Director ‣ retreating into functional comfort zone ‣ unwilling to be responsible for the actions of others 46
    64. 64. Why do it?• Board membership is high risk - high reward situation• Good reasons to do it ‣ Desire to make a difference for the better ‣ Financial reward ‣ The unique political/intellectual challenge 47
    65. 65. The Role of the Board• Matthew Bickerton• bickerton.cc/blog/cass-nvc © 2011 Matthew Bickerton Licensed under a Creative Commons Attribution 3.0 Unported License. 48

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