If an organization’s board of directors is not clear about its legal responsibilities, it can be a serious problem. It reduces company productivity, slows the organization’s mission, and holds board members personally accountable for not following the rules. In this article, we’ll outline the 10 most common governance mistakes board members can make.
Failure to understand fiduciary responsibilities
This is one of the worst mistakes a board member could make, because when you accept this role you automatically take responsibility for acting according to the duties of good faith, due diligence, and loyalty. Increased scrutiny by the IRS, Congress, state attorneys general, the media, and the federal government also requires vigilance. You can no longer get away with simply authorizing committee recommendations if you violate fiduciary duties, you just need to take no chances in the first place.
Lack of effective oversight
The board has never been alone, it has always been able to delegate some tasks to committees, staff, and other professionals, but you can only do so if you know exactly what you have done and if you have the proper oversight. The word “oversight” refers to policies and procedures that analyze and evaluate financial statements and implement various corporate-level policies. For more complex tasks where more attention is needed, you can direct committees that exist to oversee investments, compensation, audits, and finances.
Transition to founder.
A non-profit organization may well have been founded by a single individual, and even then be on the board of directors, but it does not need to be elevated above all others. Only the board is at the head of the process and is responsible for all activities that take place during the meeting, you should not shift it to the founder.
Failure to stick to your business
When board members start to interfere with day-to-day management tasks it leads to chaos. Everyone involved needs to know their roles and responsibilities. The day-to-day processes are the responsibility of the executive director, but not of other members of the board, and the boundaries should not be blurred here, though there are situations when it is necessary.
Non-compliance with procedures
If the members of the board are not familiar with the charter, which spells out all the procedures and rules, it may lead to tensions and slow decision-making. There are times when specific procedures have to be developed for a specific circumstance.
Poor record keeping.
Every meeting of the directors should be minuted, recording the main points: the problem and what measures will be taken to resolve it. This demonstrates the transparency of the board’s work and helps in case of litigation.
Ignorance of the law
As we know, ignorance of the law does not exempt you from responsibility. Board members should always be aware of all the rules and regulations which refer to the regulation of their company’s activity.
Irresponsible hiring of new board members
It has always been tempting for board members to choose someone rich and powerful to join their team, but they should make sure the person will be interested in what you do and have the proper qualifications.
Don’t Encourage Diversity.
It is important to bring in outside workers to bring in new experiences to the company. So for example you might choose employees who have had legal, marketing or accounting experience.
Inability to Ask for Help When Necessary.
Companies often have to deal with complicated financial or any other kind of transactions. If you are unsure about something, it is easier to ask for advice to avoid problems later on.