Role of Board within an Organization - Literature review Example

Role of Board within an Organization The importance of the presence of board members within an organization in order to maintain a corporate governance level is vital. The concept of corporate governance is growing within the organization at a very fast pace. A well-controlled and well-governed organization is actually moving towards the success. In order to maintain this control, there should be an effective team of board members so that they can run the organization smoothly. A board is actually a main organ in the organization. It works like the heart working in the body. Their working should be very much active and effective in order to run any organization successfully. It is also necessary that the board members maintain a proper flow of information among the board and within the organization so that smooth working conditions can be maintained. These smooth working conditions will help all the organizational employees to perform efficiently and effectively (Solomon 2004). According to Abdul Rehman (2001) a good corporate governance structure can only be possible if board members fully control the implementation of all the policies, rules and regulations within the organization. Board members distribute the roles and responsibilities within the employees in an equal division according to the caliber of each employee. That is why it is necessary that board should be vigilant regarding allocation of responsibilities and duties. In other words, we can say that board members should devise a proper and balanced framework for the organizational duties and responsibilities (Abdul Rehman 2001). Usually it is observed that in daily routine life organizational matters, Board is not involved but whenever there is any contingency or problem then all the responsibility comes on the shoulders of the Board members. There are many examples of the companies where the Board of Directors has to suffer a great loss just because of the actions of the employees. For this reason, it is usually said that the maintenance of corporate governance in the organization is the total responsibility of the Board members as a result that they may come to notice when anything goes wrong (Abdul Rehman 2001) . However, the central position of the Board within any organization remains same but still there can be differences in the forms of these central Boards. Depending upon these differences there can be difference in the functions also (Adams, Hermalin & Weisbach 2008). Many authors are of the opinion that the basic reason of the difference between different Boards of directors is the function and performance of them within the organization. In addition to this, the behavior of Board Members may also create differences between them. That is the reason we can say that some Boards are successfully running and controlling their organizations whereas contrary to them some others are failed in the implementation of the rules and regulations within the organization. Many authors are of viewpoint that non-managerial Directors are less efficient and energetic as compare to the managerial ones (Whatcom Council of Nonprofit). The reason behind this opinion is that the managerial persons are fully involved in all the circumstances, which any organization may face during its operational activities whereas non-managerial persons are not involved in such situations. For this reason, we can say that managerial persons can take better decisions and thus solving the problems as compare to the non-managerial persons (Adams, Hermalin & Weisbach 2008). Though it is a fact that Board of Director is a sort of silent part of any organization but still it is involved in many fields which any organization need for smooth running (Board of Directors 2005). Board of Directors is involved in the advisory services or we can say counseling of the managers and the employees. These advices and opinions actually motivate any manager or employee towards better, efficient and effective performance. The employees’ goals and objectives should be associated with the organizational goals and objectives. The association of personal and organizational goals can only be possible by a thorough counseling, which can only be done by the Board of Directors. We can say that Board of directors is indirectly involved in the activities, which actually boost up the performance of the whole organization (Board of Directors 2005). Another indirect activity of Board of Directors may include the maintenance of the discipline. The work place environment should be disciplined enough that employees may feel comfortable to work in such a place. They can even more concentrate on their work and thus improving their performances. Whenever any organization is working in an open market where there is a competition between all the market players then the possibility of uncertain and abrupt situations is always alive in the policies of the Board of Directors. In these situations, the whole and sole responsibility comes on the shoulders of the Board of Directors to tackle the situation in a proper way. The Board of Directors should make plans for handling all such emergency, uncertain and contingency situations so that they may not face any abrupt problem in the operations of the organization just because of any little change in the circumstances (Board of Directors 2005). In case of emergencies, the organizational managers can also utilize the expertise of the Board members and Directors. The Board of Directors is also sometimes involved in the strategy planning and making of the organization (HR Planning 2001). These strategies can be of any level i.e. business, corporate or operational. The expert opinion of the Board of the Directors is always involved in it. The mission and vision statements of any company are the most important things for any organization. These statements actually depict the true and real nature and essence of the company. Therefore, Board of Directors put great emphasis on the making of these statements (HR Planning 2001). Many other authors are of the opinion that all the employee management or we can say human resource management decisions are the whole and sole responsibility of the Board of Directors (HR Planning 2001). These human resource management decisions may include hiring, firing, promotions, pay packages, bonuses, rewards, transfers, assistances, trainings, developmental programs and many such decisions. All of these important human resource management decisions can only be taken after careful monitoring and analysis of the employees’ performances (HR Planning 2001). The Board of Directors is fully responsible for making a team of experts, which are vigilant and efficient regarding their work. These employees can be motivated towards better performances by announcing bonuses and different bonuses. These packages actually work as the power up booster for the employees and they may start working more efficiently and effectively for the organization (HR Planning 2001). If we talk about the structure and the formation of the Board of Directors, then there can be different styles or we can say types of the directors. One is the inside director while the other one is the outside director (Perrone 2005). An inside director is the one who is fully involve in all the activities of the firm; he is working like an employee in the organization. On the other hand, a director, which is not permanently associated with the organization primarily, is an outside director of the firm. Outside directors are fully independent in their decisions. Any of their activity, actions or decisions is not associated with the organization directly (Perrone 2005). The examples of outsider director are a lawyer or the banker of any company. Companies have to take their services rather they are not dependent on the companies. As compare to the outside directors, the inside directors are dependent on the company for their decisions etc. their actions and activities may affect the repute or the operations of the company therefore they must be careful regarding this matter (Perrone 2005). The role of Board of Directors is very much important within the organization (Best practices for Executive Directors 2000). The Board has the responsibility of the effective resource planning for the organization. The resource availability is always a crucial matter for the organization when there is a severe competition among companies. Therefore, the Board should make an effective and efficient use of all the available resources. The effective use of resources will help organization very much by conserving them for the coming days. This effective and efficient use of resources is only possible when the Board has a strong planning for it (Best practices for Executive Directors 2000). The allocation, monitoring and the whole management of firm’s resources come under the umbrella of the organizational resource planning. In this 21st century, there is a fierce competition between different organizations. In order to create a place in the market, the organization may need an effective marketing or we can say a promotional program (Hayward &Starovic 2010). This marketing can be done through different ways. The basic purpose of these promotional programs is to popularize the organization in the market. Here the role of the Board is the linkage between the employees and the stakeholders of the company. These promotional or marketing programs will definitely affect all the possible stakeholders in a positive way. The list of stakeholders may include many people and entities like customers, media i.e. electronic, social and print, Government and State agencies etc. it is necessary to create a positive image of the organization among different stakeholders. The Board should focus on this aspect as a responsibility upon them (Hayward &Starovic 2010). Many research studies actually clarify the roles and responsibilities of the Board of Directors in a general way (Board of Directors Guidelines 2000). Though there are many members in a Board but for an organization, it acts like a corporate collective entity, which has to take responsibility of the organization as a whole unit. According to the author point of view, Board should make sure that each employee of the organization understands the core purpose of existence of the company. This core purpose can be understandable if the mission and vision statements are clear to each employee. These both statements actually show the reason of existence of any firm. Therefore, it is necessary for the Board to make it clear for all the employees so that they can work accordingly. It is also the responsibility of the Board to monitor the consistency of the performance of the employees (Board of Directors Guidelines 2000; Boland 2009). Another author gives his opinion regarding the roles and responsibilities of the Board of Directors. According to him, the compliance between the organizational policies and their implementation is also the responsibility of the Board. This compliance can be possible by making a strong internal control system (Corporate Responsibility and Corporate Compliance 2001). For making an effective internal control system, the Board members should ensure efficient and effective future planning for the organization. A pre-planning can save organization from many problems. There would be a less chance of loss of resources because of the planning. Uncertain situations are always a part of the game therefore the Board of Directors should have to consider the aspect of pre-planning for the organization. This planning process will definitely help the organization in the long run (Corporate Responsibility and Corporate Compliance 2001). Supervision of the company mangers is also the responsibility of the Board members (Wolfred 2008). The fear of accountability and supervision may motivate the employees and the managers to work better. They will try hard to make a position in the eye of the Board of Directors. The supervision not only includes the accountability and the daily check on the operational activities of the managers and the labor force, rather supervision includes the consultancy and the advisory services of the Board too. Another author Korngold (2014) supports the idea in his study that a good advice is a moral and ethical duty of the Board member. These advices can provide a direction to the managers and employees, so that they can put their efforts in the right direction. Supervision may also include a complete auditing process annually. This auditing process should be vigilant and effective. At the results of the audit, the employees should be rewarded accordingly. In other words, we can say that monitoring, auditing and consultancy comes under the umbrella of the supervision. Any organizational entity is not workable unless many other intermediaries are involved with it (Thomas 2011). These intermediaries or we can say third parties are very important for the accomplishment of the operational activities of the firm. In order to work with these parties, the firm needs to maintain good relationship with them. Another author Arnwine (2002) states in his article that relationship management is also the responsibility of the Board within any organization. The other parties may include all the stakeholders of the firm e.g. suppliers and customers etc. A good relationship may aid the operational activities of the firm. Therefore the Board should also focus on the relationship management form the organizational perspective. When working in a professional setting then every individual is supposed to be a professional who actually take care of the ethics and moral duties of that particular place (Role of Board of Directors 2009). The professional responsibility of any position asks for the integrity, devotion and honesty to that particular work place. All the actions, which Board take, should be in accordance with the policies and the strategies of the organization. All the judgments of the Board members should be positive and no personal matters should be mixed in a professional setting. Another important consideration is the confidentiality of all the professional matters of the organization. It is the responsibility of the Board to take care of the secrecy and the confidentiality of all the private matters of the company. We can say the professionalism also demands some specific behaviors from the individuals, which should be accepted by the Board and specifically, and the Board generally. In today’s modern era of competition, the roles and responsibility of the Board has also increased (Kennan 2013). Board has to face many challenges to fulfill their roles and responsibilities towards the organization. There is a scarce availability of resources so the firm managers and the Directors have to make such an effective resource planning, that it can be beneficial for the organization very much. Different companies may attract the best potential employees by offering different compensation packages. Therefore, the responsibility comes on the shoulders of the Board to maintain their labor force. The expertise of the employees is one of the most important assets of the company (Kennan 2013). It is the need of the hour, that Board should tackle all the challenges wisely; these challenges are the positive sign of growth and development of the organization. Reference List: Adams, R, Hermalin, B & Weisbach, M 2008, “The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey”, National Bureau of Economic Research, NBER Working Paper Series, Working Paper 14486 Arnwine, D 2002, “Effective Governance: The Roles and Responsibilities of the Board Members”, US National Library of Medicine, viewed 7 May 2014 http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1276331/ Boland, M 2009, “The Role of the Board of Directors”, Ag Decision Maker, Iowa State University, University Extension CORPORATE RESPONSIBILITY AND CORPORATE COMPLIANCE: Retrieved from http://oig.hhs.gov/fraud/docs/complianceguidance/040203CorpRespRsceGuide.pdf Endeavour mining (2012, October 18). Endeavour Mining Corporation - News Releases - Endeavour Mining Closes Avion Acquisition and Announces New Board Members - Sun May 11, 2014. Retrieved from http://www.endeavourmining.com/s/NewsReleasesArchive.asp?ReportID=553021&_Title=Endeavour-Mining-Closes-Avion-Acquisition-and-Announces-New-Board-Members Hayward, C & Starovic, D 2010, “The Role of the Non-Executive Directors: Making Corporate Governance Work”, CIMA, the Chartered Institute of Management Accountants HR Planning (n.d.). The Boards Role in HR | HR Planning | HR Toolkit | hrcouncil.ca. Retrieved from http://hrcouncil.ca/hr-toolkit/planning-board-role.cfm Kennan, J 2013, “The Board of Directors, Roles, Responsibilities”, Investing For Beginners, viewed 7th May 2014 http://beginnersinvest.about.com/cs/a/aa2203a.htm Korngold, A 2014, “How Companies can achieve an Effective Board Governance, Stakeholder Engagement, and NGO Partnership”, The Blog, viewed 7th May 2014 http://www.huffingtonpost.com/alice-korngold/how-companies-can-achieve_b_4769562.html Marsdd.com (2009, 6). What is the role of a board of directors and how do you put one together? | MaRS. Retrieved from http://www.marsdd.com/mars-library/what-is-the-role-of-a-board-of-directors-and-how-do-you-put-one-together/ Perrone, M 2005, “Governing the Non-Profit Organization”, Centre for Public and Non-Profit Leadership, Georgetown University Rehman, A 2001, “Roles, Responsibilities and Functions of Board of Directors in an Organization”, Department of Business Administration, Faculty of Administrative Sciences Kotli, University of Azad Jammu Kashmir Solomon, A & Solomon, J 2004, “Corporate Governance and Accountability”, John Willey and Sons, England Thomas, C 2011, “Board Effectiveness, Challenges and Solutions”, Engaging External Stakeholders, viewed 7th May 2014 http://www.ceoforum.com.au/article-detail.cfm?cid=7990&t=/Chris-Thomas-Egon-Zehnder-International/Board-effectiveness-challenges-and-solutions# Veecu (2014, March). What Is A Board Of Directors | Veecu PDF. Retrieved from http://veecu.com/azure/what_is_a_board_of_directors Whatcom Council of Nonprofit (n.d.). Best Practices for Executive Directors and Boards of Nonprofit Organizations. Retrieved from http://efls.ca/webresources/WCN_best_practices_for_non-profit%20boards.pdf Wolfred, T 2008, “Building Leader full Organization, Succession planning For Non-Profits”, Executive Transition Monograph Series, Volume 6, The Annie E, Casey Foundation Read More