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The board of directors is critical because it is the link between the company's owners - its shareholders - and its executives and management, and it is increasingly the link between the company's impact on society and the environment.
As the concept of board accountability matures, it becomes evident that the "buck stops with the board."
As the stakeholder capitalism movement gains traction, boards are under increased scrutiny for accountability and transparency.
Shareholders are increasingly expecting boards to ensure that firms address major challenges such as climate change.
Activist hedge funds have been the most powerful drivers of enhanced board accountability. Such shareholders have even voted to remove board members and replace them.
Employees are also taking steps to make boards more accountable. The same can be said of politicians and the media, who put further pressure on boards to be more accountable and open.
Important points
Board accountability entails being transparent and responsible.
To do so, boards must ensure they have a proper information-gathering mechanism in place.
Open and honest reporting fosters trust.
Board reports should be fair and balanced.
Board accountability entails the board accepting responsibility for the company's actions and presenting them to stakeholders in a transparent manner.
The Advantages of Accountability
When first starting out, it is critical to underline the benefits of increased accountability and get buy-in from the entire board.
One advantage of fostering a strong culture of accountability is that directors will become more cautious about their decisions, lowering risk.
Another benefit of improving board accountability is that it helps align board members and increase overall performance in line with business objectives.
Who should hold the board accountable?
Shareholders (the owners), regulators, judges, accreditation authorities, clients, customers, and financial institutions should all keep the board accountable.
Directors must manage any conflicts of interest and be in compliance with their legal obligations.
How to Foster Board Accountability
Determining the risks in the company and establishing clear communication channels are two of the first measures that can be made to promote accountability. Open and honest reporting contributes to increased confidence among stakeholders.
Collecting intelligence from stakeholders: This includes taking into account both shareholder and stakeholder value.
Ensuring the board has the necessary resources: In an era when diversity and inclusion, as well as climate change, are high on the agenda, boards should ensure that they have access to the necessary resources to succeed in these areas.
Boards must be balanced and fair
When it comes to strategic reports, boards must take the lead and guarantee that their assessments of corporate performance are fair and balanced, presenting both positive and negative aspects without bias.
Boards must strive for more than minimal levels of disclosure, yet it is also accepted that boards must protect commercially sensitive information.
Attending meetings, staying informed, making inquiries, and collecting advice from third parties are some of the activities that directors are supposed to fulfil.
It might be difficult to inspire board responsibility in the non-profit sector because some board members work voluntarily and may be very busy with other duties.
Individual responsibilities for board members, as well as goals associated with each role, can aid in the development of a healthy board culture.
Board directors should be aware of any unethical behaviour, including fraud, insider trading, or financial mismanagement. Attendance at meetings and responsibilities should be checked for performance.
Furthermore, term limitations can be imposed on board members, ensuring that board members can be removed from their positions at the conclusion of a term if there are any difficulties.
Boards must take the initiative and assume responsibility
Another step towards improving board accountability could be to create job descriptions for board members that outline their tasks and to who they are accountable. Signing up for such descriptions can help provide a contractual reminder of board members' responsibilities.
Time might be set out for evaluation, during which each board member can present a report on what they believe they have accomplished in the previous year. Furthermore, the board's performance as a full unit might be discussed. Such reviews could be coordinated with regular meetings.
A mentoring programme could give greater consistency throughout role transitions, and a culture of accountability, in general, should be encouraged.
Allowing board members to self-report their progress can also be beneficial. When it comes to responsibility, senior leadership should be able to set an example by being receptive to both positive and negative feedback and acting on it.
Boards must have rigorous control in areas such as compensation, and there must be some transparency in the board's decision-making process.
higher board responsibility benefits the overall economy since it fosters higher trust among shareholders, resulting in increased market confidence.
It also demonstrates that organisations are handled responsibly and that good performance is adequately rewarded.
Our Directors’ Institute- World council of Directors can help you accelerate your board journey by training you on your roles and responsibilities to be carried out in an efficient manner helping you to make a significant contribution to the board and raise corporate governance standards within the organization.
Our ESG Expert certification will help you to amplify your understanding of corporate governance in a detailed manner paving a way for you to become a globally recognized ESG leader.
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