The role of the board of directors and its place in the corporate governance system are defined at the level of legislation and are also disclosed in the Corporate Governance Code. In this article, more about it.
Board of directors as a key element of corporate structure
Changes in the external environment and new challenges that modern organizations face, whether it is the increasing use of various innovations and technologies or changing regulatory requirements, require increased attention at a strategic level to emerging risks and, as a result, an increased role and responsibility of members of the organization’s board of directors.
The effectiveness of the board of directors of an organization largely depends on the understanding by the owners of the organization of the purpose of this governing body, understanding why the organization needs a board of directors, what is its actual role in organizing the corporate governance system and the company’s activities as a whole. Understanding by members of the board of directors that it performs the key functions of control and strategic management for the long-term sustainable development of the organization, and is not a body created to formally comply with the requirements of the law, which only approves decisions prepared by the company’s management, is a key aspect of the effective work of the board of directors.
All companies need corporate governance, but not all companies need it in the same way. There is no single, common corporate governance model for all, although the challenges for companies are the same:
- the necessity to attract funding;
- the need to maintain and expand market share;
- risk and innovation management;
- creation of a sustainable system that allows the company not to depend entirely on the personality of its founder.
Board of director’s responsibilities
The board of directors helps organizations grow and develop at the pace that the business needs – without slowing down and at full capacity. Plus, the board of directors and corporate governance also solves the owner’s tasks – it helps him to minimize his presence in operational management.
Both advisory boards and boards of directors have a similar structure:
- both should have a chairman who presides over council meetings, as well as formalized procedures for conducting them;
- executive directors – as they have an advantage in assessing the understanding of what is happening due to their experience and knowledge of the internal kitchen;
- independent directors – they are more likely to be objective and not emotionally attached to the company, unlike executive directors or business owners.
Very often the board of directors is required to make effective decisions, taking into account all available information. Thousands of shareholders in public companies may have very different ideas about what is the best way to run a company. To satisfy their interests, it is necessary to conduct a laborious analysis of possible measures and their results. The board of directors is designed to provide important benefits through competence and effective decision-making.
The board of directors as an active participant in attracting investments to the company
The board of directors is an entity entrusted with a function related to attracting investments to the company. Investors build relationships with companies based on trust, preferring those managed by strong boards of directors. Thus, the board of directors acts in the economic interests of shareholders as a whole, even if there are shareholders who are trying to increase the wealth of shareholders at the expense of other stakeholders. When a company is run by a board of directors, not only advantages are obvious, but also disadvantages.