Boards are required by law to exercise their due diligence to ensure that the organization fulfills its objectives and has a solid strategic plan, and doesn’t get into financial or legal difficulties. The way in which boards take on these responsibilities differs greatly and is dependent on the circumstances.
Boards often make the error of becoming too involved with operational issues that should be left to management or are unclear about their legal obligations for decisions and actions made by an organization. This confusion is usually caused by not keeping up with constantly changing requirements for boards, or from unanticipated issues such digitalizing M&A diligence with data rooms as sudden financial crisis or staff departures. This can usually be solved by taking the time to discuss the challenges facing directors and providing them with simple written materials and an orientation.
Another common error is when the board is able to delegate its authority and chooses not to look into the issues it has delegated (except for the tiniest of NPOs). In this case, the board loses the evaluation function and is unable to determine whether the operating activities contribute to the satisfactory performance of the organization.
The board should also create a governance system, which includes how it will interact with the general manager or chief executive officer. This includes the determination of the frequency of meetings and how members will be elected and removed, and the manner in which decisions are made. The board should also develop information systems that provide valid data on past and future performance in order to assist in making its decisions.
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