This post provides direction on managing company boards and should be see in the content of other posts on governance and company law.
Firstly a quick summary of the key points:
- The board of directors is the group of individuals charged with governing the company in the interests of the shareholders,
- Board members have a legal obligation to act in the interests of the company,
- Board members have a legal obligation to manage conflicts of interest,
- Unless otherwise prescribed, a board member can be removed through an ordinary resolution requiring a the support of a simple majority of shareholders,
- Board minutes should be used to record and validate board proceedings,
Experience shows that smaller boards are more efficient and effective so efforts should be made to constraint the number of directors, particularly if they are likely to reduce board alignment. External directors can add value but, prior to being engaged there should be a clear understanding what the individual is expected to deliver and any shares offered should be linked to delivery of the agreed objectives. Do not assume that an industry figure will provide assistance without such an agreement.
Once the company has institutional investors they are likely to appoint investor directors and there is where a good chairman can be very useful in managing the operation of the board. Additionally, when investors join the board much of the board meeting tends to be absorbed by operation issues. At this point it is important to separate the governance function of the board from reporting. This can be done by running the meeting in two parts, a formal board session covered by board minutes and a second session in which the company reports on operations.
The board has an obligation to report to shareholders and it is good practice to give a shareholder update on a regular and frequent basis, quarterly is a reasonable objective. The temptation is to wait for good news to report but experience shows that it is much better to provide regular and factual reports. In particular do not provide to much forwards guidance on potential business since this just invites difficult question later when they take longer to close.