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How the board should oversee the executive team.

by Andrew Kaufmann

If you’re a board member of an organisation, do you know how to relate to management? You know you’re supposed to oversee their work, but how should you do so? Micromanage? Hands-off? Should you involve them in discussions? How should you relay board deliberations? Do you apply them at all in major decisions? Or perhaps a need to know basis? In this guide we examine how the board should oversee the executive team.

Boards and management – who makes what decisions?

Let’s start with the obvious – management reports to the board. The board’s decisions always outrank management’s.

But what kinds of decisions should each group make? The board generally makes high-level decisions, and management makes low-level decisions. The board’s decisions fall mainly into four categories:

• HR-related decisions, especially CEO succession; • financial decisions, like capital allocation; • strategy and mergers & acquisitions; and • governance decisions relating to organisational structure.

On the other hand, management typically implements the board’s vision, so their decisions tend to be tactical and operational. In other words, management will determine how to put into practice the actual vision of the board.

To take one example, the board is responsible for ensuring the organisation’s financial viability. If the revenues are not keeping pace with expenses, the board needs to take action in some meaningful way (maybe replacing the CEO, for example). However, it’s the responsibility of management to ensure that the organisation maintains its financial footing on a day-to-day basis. Ultimately, the financial buck stops with the board, but it’s management’s job to keep the ship afloat.

Work to achieve the same vision

If you’ve ever been on a board or in a management position, you know the two sides don’t always see eye-to-eye when it comes to what the organisation is about. This is not always because there’s an inherent problem with the two groups. It’s usually just because board members are not involved in the organisation’s day-to-day activities and therefore don’t see what the management sees with the same regularity.

Acknowledging that this inherent tension exists is the first step toward success since that removes the impugning of sinister motives by either side. Still, both groups need to work toward the same vision. According to Carol Stephenson, the board’s main job is to establish a compelling vision for the organisation, “a vision that recognises that a company has a purpose as part of a larger community.” More than that, for the sake of company morale, management needs to embrace the vision as well. If everyone in the organisation–board, management, employees–can get behind a shared vision, spirits will be improved, and productivity will likely go through the roof.

Oversee management without micromanaging

So far, we’ve established that boards should make high-level decisions, be on the same page with management, and oversee without micromanaging. Easy task, right?

One way to make all of these things more likely is by having a healthy culture of dialogue between the board and management. As Colin Carter and Jay Lorsch say, “If we could offer only one piece of advice, it would be to strive for open communication among board members and between the board and management.”

First, the board must communicate to management regularly, do so honestly, and deliver both good and bad news without reservation.

Especially if an important decision is on the horizon, communication from the board to management should be done early and often. One of the quickest ways to kill morale is for management (and employees) to be blindsided by a consequential decision. Imagine a round of layoffs or a reorganisation with little to no notice from the board. The spirits of the whole organisation can be ruined with that kind of communication strategy.

The information flow – communicate early and often

Graphics design company Nvidia features a highly innovative corporate responsibility program that extends to multiple sectors such as healthcare and emerging markets. The MNC takes on a people-first approach through the innovative advancements of AI.

For example, Nvidia empowers employees to give back to communities via its Inspire 365 Initiative. The company matches employees’ personal gifts all year round and encourages staff to volunteer during off-hours.

Additionally, Nvidia involves employees from the onboarding stage, presenting them with donation vouchers for a charity of their choice and monthly challenges for acts of kindness across various settings.

Based on Nvidia’s 2021 Financial Year Report, the company has successfully contributed more than $25 million through its combined donation efforts, collaborating with over 5,000 nonprofits across 50 countries.

Provide safe spaces for constructive criticism

Perhaps more importantly, allow for regular input from management on issues that matter. Again, this is a management principle that applies to anyone in leadership. Not only should you allow managers to solve their problems (with guidance), you should enable them to provide meaningful input into high-level decisions.

As board members, you make the final call. But you do so at your peril if you build a wall around your boardroom, resisting any ideas that might come from management. Not only will you diminish the management team, but you’ll also be excluding viewpoints from people who know more than you do about the organisation’s day-to-day functions.

Again, while you as a board member have the final say, you don’t know everything, and you don’t always have the correct opinion. Your perspective is limited, and you don’t always see everything you need to see to make the right call. That’s not your fault. Creating spaces that are comfortable for management to question and even challenge organisational direction may be risky for you, but it’s vital for the organisation’s health.

Fortunately, there are several ways to do this. You can:

• provide anonymous ways for management to provide written feedback • conduct listening tours with individual managers • invite management into low-stakes feedback sessions

However, when you set it up, ensure that management feels free to share its views without fear of recrimination. The goal is to gain valuable feedback and not create a threatening environment. Also, be sure to act on at least some of the feedback you receive. That way, your efforts to solicit feedback won’t be panned as empty gestures.

In conclusion, then, it’s clear that board-management relations are vital to the health of any organisation. And while there are many ways to damage those relations, if you follow these best practices, you’ll be well on your way to organisational happiness.

With credit and gratitude to The Corporate Governance Institute our partner for governance diploma and courses.


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