Boards are legally required to exercise due diligence in ensuring that the company is able to achieve its objectives and has a solid strategic plan, and doesn’t run into legal or financial difficulties. The manner in which boards perform their duties differs widely and is dependent on the situation.
A common mistake is that boards become too involved in operational aspects which should be left to management, or that they aren’t aware of their legal responsibility for the decisions they make and the actions they undertake on behalf of the company. This confusion often results from not being able to keep up with the changing demands placed on boards or from unanticipated problems like unexpected financial crisis or staff departures. This can usually be solved by taking the time to discuss the challenges facing directors and supplying directors with easy-to-read materials and a briefing.
Another common mistake is that the board over-delegates its power and chooses not to look into the matters it has delegated (except in the most small of NPOs). In this situation the board is unable to perform its evaluation function and is unable to determine whether the operational activities are contributing to the satisfactory performance of the company.
The board should also create a system of governance that outlines how it will work with the general manger or chief executive officer. This includes setting the frequency of board meetings and how board members will be selected and removed, and the manner in which decisions are made. The board must also establish information systems that offer valid data on past and future performance to aid in making decisions.