Whether the organization is publicly-traded, a family business or a not-for-profit, boards of directors deal with many universal issues. The central responsibility of a board member is to make sure the organization prospers and fulfills its strategic mission while ensuring nothing puts the organization’s existence in detriment.
“Board members should have a solid understanding of the basic fiduciary responsibilities that need to be fulfilled and how they are going to ensure that they do so at the particular organization they are serving,” says Bob Stillman, CPA, director, assurance and business advisory services at GBQ Partners LLC. “The top priority of board members is to strategically develop a high-level course of action to ensure the preservation, existence and continued success of the entity.”
Smart Business spoke with Stillman about the essentials of board member fiduciary responsibilities and other matters that affect board members and benefit their related organizations.
What are the key fiduciary responsibilities of a board member?
When advising my clients, I routinely refer to the guidance provided by the attorney general of Ohio, who identifies four primary fiduciary duties:
- Duty of care: meaning be active in the organization’s affairs, consistently attend meetings, keep yourself informed to determine if the policies established are appropriate and adhered to, understand how the organization functions, act diligently and in good faith, with knowledge and after adequate deliberations.
- Duty of loyalty: really relates to acting without self-interest and resolving conflicts of interest. This takes varying forms depending on whether the organization is a public corporation, closely-held/family-owned organization or a not-for-profit organization.
- Duty to manage accounts: relates to the financial accountability of the organization and checks to ensure appropriate internal control is established; records, reports and financial accounting are accurate, timely, sufficient, and monitored; appropriate activities are occurring to ensure sufficient funding resources and there is appropriate expenditures and risk management.
- Duty of compliance: relating to following articles of incorporation, by-laws, other operating documents, relevant laws, regulations and filing requirements.
It is imperative that both management of the organization and the board members understand what each of these duties encompass.
How can board members understand more about these duties and take better responsibility for their roles?
The organization should provide a sufficient level of board member training that is tailored for the particular organization. People join boards having past board experience ranging from none to extensive. Providing new board member training offers an opportunity to explain what’s expected of a board member. Management benefits significantly when their board members have a strong understanding of fiduciary responsibilities. The full board should receive a refresher annually about their basic fiduciary responsibilities.
Why is important for board members to understand and take control of their fiduciary responsibilities?
Many people view participating on a board as an opportunity to apply their personal and professional skills for the benefit of an organization and an opportunity to continue to develop their personal and professional network. However, the board’s collective decisions could have serious consequences for the organization that may reflect on individual board members. Clearly understanding the basic fiduciary responsibilities will help them be a more cognisant about that general risk as well as be a more effective board member.
You cannot abdicate your fiduciary responsibilities to another board member. Commonly, the CPA on the board takes the brunt of the details of the duty to manage accounts, but all other board members must have sufficient information to make their own decision.
Beyond fulfilling the basic fiduciary responsibilities, what other areas should a board member focus?
A well-informed and engaged board of directors will ensure an appropriate strategy is developed and implemented to enable the future success of the organization. Doing so inevitably requires the board to assess the leadership within management. This can be an uncomfortable position, however, a board member should expect to deal with this matter routinely. Also, key management personnel risk is becoming more prevalent with our aging society as professionals move toward retirement. The board needs to consider succession planning for key management personnel.
What skill sets should business leaders look for in a good board member?
A strong board needs to be well-balanced with people that possess specialized skills in certain common areas, such as legal, lending, investing, accounting, human resources, business development, insurance, human resources and technology. You also need members who will establish the tone at the top from an internal control standpoint and develop expectations with management about the quality they expect of the organization.
In the end, for any organization, reputation is its biggest asset and difficult to restore if it is damaged. Board members have a high responsibility to preserve, continue to promote and safeguard this. If they stumble, the organization could be open to negative exposure. You want people who are well respected with certain credentials who will continue to preserve and improve the organization’s
reputation.
Bob Stillman, CPA, is director, assurance and business advisory services at GBQ Partners LLC. Reach him at (614) 947-5304 or [email protected].
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