How Characteristics of Board of Directors Affect Company’s Performance

characteristics of the board of directors

For the company to achieve its goals, its direction must be set by the board of directors, which controls the actions of the company’s managers. In this article, we will analyze the basic functions and characteristics of the board of directors.

What is the role of the board of directors in the corporate structure?

The legislation provides for the obligatory creation of a board of directors in a company with more than fifty shareholders, which is entrusted with part of the general management of the company’s activities and which is assigned an important role in ensuring the rights of the company’s shareholders, as well as in the successful financial and economic activities of the company and its development.

It should be mentioned, that the board of directors itself cannot do everything on its own. He must determine the need, create conditions that would force managers to do everything to perform the necessary functions. Therefore, the board must be able to identify the problems of the company, respond to them on time, using appropriate tools. To do this, members of the board must have such qualifications and personal qualities that would allow them to jointly cover all areas of the company’s activities, analyze activities from all sides, and take into account the expectations of all groups of investors and other participants in corporate relations.

The board can consider almost any issue of the company’s activities, provided that these decisions are general, set the scope of activities, or determine the direction of the company’s activities.

What are the basic responsibilities of board members?

One of the main factors influencing the effectiveness of the work of the board of directors, the level of its influence on the company’s activities, is the correct definition, understanding, and awareness by the members of the board of its functions and tasks.

The best corporate governance practices focus on the following responsibilities of the board of directors:

  • Determination of the company’s development strategy

By determining such directions, the council establishes the main guidelines for the company’s activities in the long term. At the same time, effective adherence to the approved priority areas is possible only if they are objectively assessed, taking into account the market situation, the financial condition of the company, and other factors influencing the financial and economic activities of the company.

  • Control over the financial and economic activities of the company

The risks that a company faces in carrying out its activities are ultimately forced to be taken by shareholders. Therefore, an important function of the board, which is responsible for ensuring the rights of shareholders, is to control the creation of a risk management system that would allow assessing the risks that the company faces in the course of its activities and minimizing the negative consequences of such risks.

  • Control over the activities of the executive body

The effectiveness of the activities of the executive bodies of the company largely depends on the qualifications of senior officials. Thus, in society, it is necessary to create conditions for attracting highly qualified specialists to the management of society.

  • Ensuring a balance of interests of stakeholders and protecting the rights of shareholders

Protecting the rights of the company’s shareholders is the main function of the board of directors. The implementation of this function implies the performance of all other functions of the board, such as the organization of company management, including strategic management, the formation of a risk management system, control over the activities of managers in concluding and executing major transactions, and other functions that are usually assigned to the board of directors.