'For all directors new dangers have become apparent and the directorial task has taken on a new reality. Prudence requires that it be approached with far greater care and professionalism than has hitherto been considered necessary.' Henry Bosch. The Director at Risk. Melbourne: Pitman Publishing, 1995
The legal entity, that is, the company/incorporated association, has an existence independent of its members. A board member's first duty is to the legal entity, in other words directors must ensure
The board is ultimately accountable for the performance of the organisation. Each board member is responsible for all decisions taken by the board. This means that board members share a common liability and they could be sued individually or collectively (jointly or severally) in the event of a determination that the board failed to properly exercise its duty of care or knowingly acted in breach of the law.
Board members of companies limited by guarantee and incorporated associations have the same duties and responsibilities. These include:
The constitution defines the organisation's rules, including its governance structure and processes, for example, election of board members and office holders, powers of the board, annual general meeting procedures and procedures for winding-up.
The board must ensure that the integrity of the constitution is maintained. The law requires all board members to declare any conflict of interest relating to meeting their responsibilities as board members. The board should have a conflict of interest policy that describes the processes to be followed when a conflict is identified. Typically, when a conflict of interest is identified, the board member concerned is required to leave the room and play no part in any discussion or vote on the issue relating to the conflict of interest.
Conflicts of interest may be 'pecuniary', that is, involve the board member in financial dealings with the board, or may be non-pecuniary, for example, if there is family member or personal involvement in the matter under discussion.
Non-pecuniary conflicts of interests are less likely to occur when board members are independent rather than representing a particular member or group of members. The organisation and the board are required to comply with a wide range of legislation covering such areas as employment, trading, and occupational health and safety. The board should be aware of the scope and general content of such legislation and its relevance to the organisation.
Directors have certain responsibilities in relation to the accounts of the organisation, namely:
'The board's first responsibility is to ensure that the organisation has clearly established goals; objectives and strategies for achieving them; that they are appropriate to the circumstances and that they are understood by management.' Henry Bosch. The Director at Risk. Melbourne: Pitman Publishing, 1995
It is the board's job to establish the organisation's strategic direction. This will be reflected in the strategic plan, which will typically include:
The board develops the strategic direction and strategic plan in partnership with the chief executive officer and staff of the organisation and the sport's key stakeholders. Regardless of how the strategic direction and strategic plan is developed, it must ultimately be 'owned' by the board. Once adopted, only the board can change the strategic direction or alter the Key Result Areas.
The process of developing the strategic direction and strategic plan and ensuring that they remain up to date and relevant is called 'strategic thinking'. Strategic thinking involves constant analysis and assessment of external and internal factors that might inhibit or help the organisation to achieve its Key Result Areas, and results in decisions taken by the board and the chief executive officer to ensure sound, appropriate ongoing operations. Time should be set aside at every board meeting for strategic thinking.
All further operational plans should be consistent with the strategic direction and plan. Depending on the organisation's needs, these may include operational/business, marketing and high performance plans. Each of these plans should work towards achieving the strategic initiatives identified for each Key Result Area in the strategic plan.
Development of operational plans designed to achieve the strategies is the responsibility of the chief executive officer.
Generally speaking, the board should play no part in developing operational plans beyond setting the strategic direction and strategic plan. Some smaller sporting organisations with limited employees, however, require the practical support of board members to assist with certain aspects of the organisation's operations such as planning. When this is the case, care must be taken to ensure that the chief executive officer leads the process so that the plans are grounded in reality and are achievable.
To ensure sound management, the board may wish to view the chief executive officer's operational plans; it does not, however, have a role in developing or adopting these plans.
The one exception to this general rule is the organisation's budget, which the board must review, approve and monitor. The board should constantly evaluate progress made towards the achievement of the desired outcomes defined in the Key Result Areas.
'Nothing gives boards more concern than the handling of money. They worry far more about how funds are protected and spent than about the most crucial accountability: whether total expenditures produce a sufficient human outcome.' John Carver. Boards that Make a Difference. San Francisco: Jossey-Bass, 1991
Financial governance entails setting financial policies within which the chief executive officer must carry out day-to-day financial management, and monitoring the effective implementation of these policies. Financial 'governance' is different from financial 'management', the latter being the responsibility of the chief executive officer.
The board must perform sound financial governance, and ensure sound financial management of the organisation. The board's financial governance policies might address some or all of the following:
The external auditor is accountable to the board, not to the chief executive officer. When a board establishes a finance or audit committee, this committee works on behalf of the board to:
The finance or audit committee is chaired by a director with appropriate financial expertise and does not include the chief executive officer or finance officer or bookkeeper as a member, as the committee will need to review the financial practices
The annual budgetary process is the means by which the organisation establishes how it will fund its activities and what costs it will incur in order to achieve its desired outcomes. The budget thus reflects the organisation's overall strategic plan and Key Result Areas for the year.
The budgeting process should begin with the board determining the criteria for financial planning, including the 'financial state' the organisation should be in at the end of that financial year, for example, with a certain allowable deficit, a target surplus, a balanced budget, or some variation on these.
The budget is adopted by the board. By approving a broad rather than a highly detailed budget, the board empowers the chief executive officer to make necessary adjustments in response to minor changes in operating conditions without having to go back to the board for approval. The budget should be regarded as a 'live' management and governance tool that is subject to regular review and readjustment.
In addition to viewing financial reports regularly, the board should also require evidence of compliance with the board's financial policies. The chief executive officer (or finance officer) should present financial reports to the board at every board meeting, typically monthly. When a board meets on a less frequent basis, say every two or three months, financial reports should be distributed to board members monthly.
The board is required annually to prepare an accurate and up-to-date statement of the organisation's finances for the year ended for all members and, where relevant, for government agencies and funding bodies.
All board members share equal responsibility to monitor the financial health of the organisation. Board members should never defer to the treasurer's or a committee's views without first considering the issue themselves.
As a minimum, financial reports to the board should include actual income and expenditure andbudgeted income and expenditure for both the most recent month or period and year-to-date, along with written explanation of significant variations between these figures.
'The board system rests on the premise that the directors, and through them, management, are accountable for serving as agents of the business.' Leighton, D and Thain, D. Making Boards Work. Toronto: McGraw-Hill Ryerson, 1997
Board members share a common 'fiduciary' duty, that is, they are trustees on behalf of stakeholders for:
Board members, as trustees of the organisation, have a moral duty to the sport. This involves keeping up to date with the sport they represent and sporting matters generally, and presenting their organisation and the sport it represents in a positive manner.
Board members have a moral duty to remain up to date with the concerns and expectations of stakeholders and to ensure that these receive proper consideration at board or management level.
In keeping with its duty to serve the interests of the sport as a whole, the board has a moral obligation to keep all members (and where relevant, key stakeholders) informed about current and future organisational matters of concern to them.
The board has a moral responsibility to establish and maintain an open and frank relationship with the chief executive officer. This entails carrying out all employer-related duties consistent with the law and in a manner that creates an open, honest and productive working relationship leading to the achievement of board-established outcomes and, in general, an effective organisation.
The board has a moral obligation to consider matters on the basis of equity and transparency and in the interests of the sport as a whole, and not in preference to any one or more classes of stakeholder.
Organisational Risk Responsibilities
'And the trouble is, if you don't risk anything, you risk even more.' Erica Jong
Risk is an inevitable and unavoidable component in organisational growth and development, providing both opportunities and potential threats to the health of an organisation. 'Risk management' is the means by which the board and the chief executive officer ensure that the risks faced do not result in significant loss or harm to the organisation.
Risk management involves not only taking protective measures but also evaluating opportunities and, where appropriate, taking considered risks designed to facilitate the growth and development of the organisation.
The board should have a broad appreciation of the risks facing the organisation and the likelihood of occurrence together with the potential impact of these should they occur.
The board should ensure that a risk management plan for the organisation is developed, usually by the chief executive officer. Such a process may involve identifying the risks facing the organisation, assessing the level of threat each presents, deciding what action to take in response to each risk and ensuring effective chief executive officer response to the risks through regular monitoring and review.
Typical organisational risk categories include:
Having established the level of acceptable risk and developed an appropriate plan, it is the responsibility of the chief executive officer to implement the plan by taking actions necessary to minimise the negative impact and maximise the positive opportunities arising from risk-taking.
Chief executive officer appointment responsibility
'A strong CEO needs a strong board.' John Carver. Boards that Make a Difference. San Francisco: Jossey-Bass, 1991
In appointing its chief executive officer, the board should take every care and make every effort to ensure that:
The chief executive officer is the only direct employee of the board, all other staff being employed by the chief executive officer.
Responsibility to stakeholders
'[Organisational] ... learning comes not just from the directors, but from all members of the organisation and from those outside it. The information and "wisdom" of all stakeholders in and around the organisation is a valuable commodity which directors need to appreciate and use.' Bob Garratt. The Fish Rots from the Head. London: HarperCollinsBusiness, 1996
Stakeholders are those groups and individuals who benefit in some material way from the existence of the organisation. Boards of sporting organisations typically have three key groups of stakeholders:
The board is accountable in the first instance to its legal owners then to its moral owners. Accountability to those with whom the organisation has a business relationship is based on the nature of the relationship or the business contract. Certain stakeholders or stakeholder groups might contribute to the overall governance and management of the organisation by:
Rights of board members
In order to effectively satisfy their legal and moral responsibilities, board members have a right, in relation to sound governance decision-making, to:
'It's not rules and regulations. It's the way people work together.'Jeffrey Sonnenfeld. Harvard Business Review. September 2002, vol. 80
Working as a team
At the core of board and organisational effectiveness is the ability of directors to work together as a team. One of the greatest challenges facing boards is the ability to achieve consensus and cohesion while at the same time encouraging diversity and legitimate dissent.
The following factors contribute to the development of an effective board team: