What role does the Board of Directors play in the effectiveness of the organization? Are they influential? Do they make decisions? In order to understand the impact of the board on managerial effectiveness, you first have to think about accountability and authority in the organization. More specifically, what they are and where they come from. Once you understand how these frameworks are created, it’s easier to recognize the critical impact of the board.
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Governance Versus Operations
When an organization gets to be a certain size, it can create a clear distinction between the governance of the organization, which is the accountability of the Board, and the operations of the organization which is the accountability of a paid employee – generally a Chief Executive Officer or Executive Director.
With nonprofit organizations, a group of volunteers in a community come together to create an organization. These volunteers, as members of the organization, come together at an annual meeting where they elect a Board of Directors. They give the Board accountability and authority to govern the organization between annual meetings, but it is the membership as embodied at the annual meeting that “owns” the organization. Basically, the Board directs the organization and if the size of the operations make it necessary, hires a Chief Executive Officer or an Executive Director to manage operations.
The role of the board in the private sector is similar in that some group of stakeholders own the organization. In publicly held companies, shareholders purchase shares and therefore own a piece of the company. The Shareholders come together at an annual meeting, elect a Board of Directors and give them accountability and authority to govern the organization between annual meetings. In the privately held companies there are various mechanisms in place, but the end result is the same – there is a body of individuals that have the accountability and authority to govern the organization.
As with nonprofit organizations, the Board cannot actually do the work of the organization, so the Board will engage a Chief Executive Officer with accountability and authority for operating the organization. Ultimately, the board is accountable for putting the specific strategy in place and while staff implements. As part of this, the Board will set the personal objectives of the CEO and delegate the accountability and authority for attaining those objectives over a certain period of time. At this point, the CEO can use this delegated accountability and authority to engage employees to help do the work.
Delegating Accountability and Authority
The role of the board cannot be to direct each employee individually. Not only is it impossible, but it would undermine the authority of the CEO. As a result, the board delegates accountability and authority to the CEO and should ensure that there is an accountability and authority framework in place throughout the organization. This framework, in and of itself, greatly increases the ability of the organization to attain its strategic objectives.
The Board of Directors plays a significant role in managerial effectiveness by enabling a chain of accountability and authority that extends from the CEO down through the organization. The board’s role is to focus on governance. They impact effectiveness by delegating clear accountability and authority to the CEO, and ensuring that the CEO has an accountability and authority framework in place throughout the organization.