Author's Name: Mark Schultz
Date: Mon 04 Apr 2016

The board charter – an important governance document

Organisations striving for best practice in board leadership, effectiveness and governance will have in place a Board Charter that all board members understand and formally commit to through the selection, induction and annual review processes. This month’s article will provide a summary of the key components of a board charter and the key benefits derived from having such a document in the governance system of your organisation.

Key Components

Whilst the development and documentation of a board charter is generally unique to each organisation and reflects the specific nuances of the business, there are a number of core components that should be included in every such document, these include:

  • The organisation’s Vision, Mission and Values: a statement that defines the business and the principles that underpin all activities of the organisation. An essential starting point for creating the right culture in the organisation,( however success will depend on actions not words);
  • Code of Conduct: articulating behavioural expectations, decision-making process, compliance management and focus of the board;
  • The structure of the board: clearly articulating what the governance responsibilities of the collective board, structure and composition, sub committees and any external/stakeholder relationships and communication approach;
  • Duties & responsibilities of board members: details the specific and general expectations of individual board members; defining fiduciary responsibilities and individual roles and responsibilities;
  • Composition of the board: defining the ideal board for the organisation- skill set, diversity ( age, gender, culture ) and knowledge and experience ( always mindful of the laws of the land), tenure and succession plans;
  • Performance management: approach to individual and collective board evaluation and professional development, performance management of the Chief Executive and management of both these processes;
  • Risk management: the proposed structure to oversee risk, documentation of risk appetite and process employed to manage both the strategic and operational risk of the organisation;
  • Meetings: logistical details and expectations;
  • Relationships: between board members, the Chief Executive and management and staff;
  • Conflict of interest: how it is to be managed by both individual members and the organisation; and
  • Communication: how a board manages internal and external communication will have a real impact on the effectiveness of both its leadership and management; this section provides the opportunity for the board and senior management to think about this and create the communication strategy that aligns with its business model and culture.

Benefits of a board charter

The benefits of incorporating a board charter into your organisation’s governance system are fairly self-evident, however serve a number of important functions and are worth noting, including:

  • Documenting the policies that the board has decided upon to meet its governance, leadership, social and compliance responsibilities;
  • Providing a useful induction tool for new directors and senior managers;
  • Providing a reference point for disputes;
  • Removing individual interpretation from the decision making process;
  • Providing a forum and framework to discuss “difficult” governance issues; and
  • Creating a framework to review individual and collective performance and to clarify roles and responsibilities of both the board and management.

For new boards, the creation of a board charter during the formative stage of the organisation and the board is acknowledged to be a very worthwhile experience and process. For an existing board, if one is not in place, the same benefits can accrue and it is a relatively easy process to start and complete. If a charter does exist, then the annual agenda should include a review of its content and relevance on an annual basis to ensure it reflects the current policies and expectations of the board.

And finally, the board charter is not a secret document; its communication to stakeholders will have a positive effect and set the benchmark for performance, all of which has to be good for the organisation.

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