Why your board needs a charter

By Brad Bulkley

In order for a board to govern effectively, it must understand its responsibilities -- the bounds of its governance, which must be clearly defined. It should also know its purpose, as defined by the business owners.

A board’s most important responsibility is CEO accountability. While it may be difficult for family company owners to cede some of their power to a higher authority, the most dynamic and highest performing CEOs want accountability in the form of a strong board. Why? Because they end up performing better!

A board charter -- a formal document, even if it’s in the form of a letter -- should define specific accountability factors and how they will be measured. While opinions on many other topics will differ, as they should, effective boards look at accountability from the same perspective. Simply reviewing metrics isn’t enough. Board members must understand their meaning and how to interpret them in the context of the company’s strategy.

Another critical board responsibility is CEO succession. This is frequently the most difficult issue the board of a family company must face, often because the founder or sitting CEO doesn’t want to do so. While family ownership could be the basis for establishing a solid line of succession, boards must be honest in assessing the talents of all potential management successors. This too should be outlined in the board charter so that everyone -- the board, management and family members -- understands that the stability and health of the enterprise are paramount.

 

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