Knowledge
The role of the board in a company: worth talking about
Another meeting in the “TechMine Coffee” series was devoted to the role of the board in a company. Owners and managers of companies from various industries presented many views, experiences and pieces of good advice. Of course there were conflicting opinions, but it was in essence an apparent contradiction, because already at the beginning those gathered agreed that there is no such thing as one ideal way of operating and positioning the board in a company. Even in the gathered group there were representatives of smaller and larger companies, organized differently and having a different business model. In the economy, as in life, there are no views that are the only right ones, and confronting them helps to better understand what, how and especially why things should be done. In the free discussion the following issues, among others, were raised:
- Despite their similarity, the nouns “board” and “management” are not identical. The topic of this meeting was the board and its role. Management will be the subject of one of the next meetings. In principle the board should supervise the operational management of the company, but management itself is the domain of the organization’s lower structures. The board manages at the level of business strategy.
- The concept of the board, clearly defined by law, is implemented differently in different organizations. The larger the organization, the less board members deal with current operational activities. As an element common to all boards, it was stated that their role is to be the place where all important processes converge, observed from the right perspective. The board acts as “glue”, the binder of the matters happening in the organization, and is the center determining the strategic direction of the company’s development (its route).
- The board operates within a structure: owners, Supervisory Board, the board, and managers reporting to the board, responsible for the company’s departments. It happens that these roles are combined; it happens that formal bodies (most often in this case the Supervisory Board in a family company) fulfill their role only formally. Maintaining a state of disregard or bending of functions in the organization’s structure is sometimes the cause of many troubles flowing from the blurring of the scheme of the flow of power. People prefer to work in an organization in which the rules are clear and, most importantly, observed. Particularly harmful is skipping levels of dependence: the board does not report directly to the owner, and the CEO not to the Supervisory Board. A situation in which the board does not manage but only rubber-stamps decisions coming from above is pathological in the long run.
- Ultimately, the decision about why the company exists belongs to the owners or shareholders. It is a frequent situation that the board’s goals are in greater or lesser conflict with the owners’ goals. On the other hand, not all owners have expectations of the company greater than a regularly paid dividend growing from year to year. Conscious owners should clearly communicate to the board what they expect from the company, and a good board should turn these expectations into the company’s strategy. It was stated that the board is always in a better position than the other stakeholders: it has more knowledge and greater influence on the company’s real behavior. This thesis met with polemics: it is nevertheless easier for the owner to bring about a change of the board than vice versa.
- The fundamental purpose and sense of existence of most organizations is survival. Profit, turnover, growth as needed and as possible, are tools ensuring the company’s survival. With such an approach, the board’s role is to take care of the company’s survival.
- The banal bon mot “the board should above all not get in the way” carries an important truth: the board is something different from the rest of the company, so its members should do their own job, not their subordinates’. The board in a company should set goals and provide tools, but those tools should comply with the specification agreed together with those carrying out the operations. The board is responsible for strategy; operations are the domain of the company’s structures, operating in accordance with the strategy.
- The company’s operational departments should produce and sell, but finding market opportunities, those that may change the face of the organization, belongs to the board. Structures are inertial and are meant to be, and the board, knowing their capabilities, should look further and seek opportunities for expansion into new fields, without losing the organization’s achievements.
- An important issue in the board’s work is the reliability of the data on the basis of which it makes decisions. In its activity the board must constantly measure various parameters of the company’s operation and react to their trends. A good rule is to limit the measures of operational controlling to a few observed continuously. In the discussion the terms “true measures” and “false measures” were used. False measures are those which are generally derivatives of other indicators and do not directly describe the company’s current condition.
- In recent years awareness has been growing that the board does not have to be formalized. “Light” management methodologies are appearing, postulating flattening structures and dispersing responsibility. In some situations they are helpful, in others they rather do not work. The most fashionable at present is the teal model of a company. It is a bit like sex among teenagers: many talk about it, everyone wants to try, but for now it is limited to deliberations. The thesis was put forward that the board is sometimes the company’s bottleneck; well, in the opinion of those gathered, teal organizations cut those throats.
