Boards have three primary roles they have to set policies, make strategic and significant decisions, and oversee the activities of the organization. A well-written policy can help a board focus its efforts, prevent repetition of efforts and maintain the essential (but often thin) line between oversight and management activity.
Effective boards should be able to identify and address evolving mission-critical issues. To accomplish this, boards must have access to as much precise and complete information as possible. This can include detailed reports on budgets and expenditures, financial statements along with annual and quarterly performance results as well as narrative reports on internal operations and programs and much more. It’s important for a board to be capable of communicating the narrative presented by these data.
Board members should be able discuss controversial and difficult issues, even if this causes tension within the group. It’s important for directors to have the freedom to challenge one another and play a variety of roles on the board – the ruthless cost cutter, the damn-the-details big picture guy, or the split-the-differences peacemaker. Playing different roles allows directors to have a more complete view of the options available to the board.
While it’s commonly assumed that good boards have board members with a lot of personal stake in the business but research suggests that this isn’t an indicator of distinction. For instance, the boards of failed companies and those of highly admired corporations had roughly the same number of outsiders. The key seems to be the process of making decisions and communicating a company’s strategy and potential risks, as well as the quality of communication.