The board's role in effective decision making
The board is essentially the ultimate decision making body of an organisation, the quality of which defines its very effectiveness. The boardroom ought to be the furnace that heats up robust debate and constructive diverse conversations, ultimately refining the best decisions for the good of the body corporate.
Good governance dictates that a clear Delegation of Authority (DOA) matrix be in place to outline matters for the various layers of authority, be it for board approval, shareholder engagement or the executive leadership team cascading downwards.
Discussions and decisions at the board level should be strategic and transformative in manner and fashion, and usually address complex, directional issues that carry significant risk. Consequently, any delays from the board in making timely decisions, or hasty decision making devoid of sufficient information or adequate consultations can be detrimental to the organization.
Poor decision making would also go against the fiduciary responsibility of the board of acting in the best interest of the company.
The board would typically rely on management presentations (board pack), delve deeper with clarifications, challenge them where not in agreement or request for more information to make informed decisions.
It is important though to note that the board does not exist to reject proposals from management, act as shadow executives, or put management on unnecessary tenterhooks, but rather to work in tandem with the executive team and guide them accordingly on how to improve the presentations put forth for collective and mutual benefit of the organisation and stakeholders.
There should be acknowledgement and appreciation of the time put in by management to research and put together the board packs as opposed to the few hours the directors take to review the documents. The board should thus operate from a position of trust and confidence in the ability of the leadership team to execute the company’s strategy. After all, the recruitment and evaluation of senior executives falls within the ambit of the board and replacements can always be done in the event of dissatisfaction with performance.
Other factors that can ensure that the board is well equipped to take effective decisions include, but are not limited to:
- Timely receipt of board packs: A minimum of five (5) working days is usually advised and should be captured in the board charter. Most directors have other day to day activities either running their own businesses, as full time executives, or even sitting in other boards. It is thus paramount that they receive the board packs on time to review and appreciate the information provided and make informed decision.
- Able chair: The chair should have the right skills set to lead and encourage diversity of opinions in order to avoid “group think”.
- Reliance on board committees: Depending on the institution or industry of operation, different boards could have different committees who delve into specific delegated board duties and provide reports to the full board for approval. This task allocation eases the work at the full board level and facilitates efficiency in the decision making process.
- Reliance on consultants: In the event an agenda matter relates to a skill that none of the directors have, the board can lean on a specialist for advise in that area (e.g. in the review of the company’s constitutive documents when the board has no legal expert, a consultant can be commissioned to guide the board). The ultimate decision will however be taken and owned by the board, and they will be accountable and responsible for the consequences of that decision.
“Decision making is a skill”, a quote my father numerously shared with us growing up. This applies to every person on a routine day to day life, but more so to those charged with leadership of institutions like the board of directors. People charged with governance of an organisation should have the capability to make effective decisions, regardless of how difficult the circumstances may be.
This is a guest blog and therefore does not necessarily represent the views of the Institute of Directors.