The board of directors has several duties. However, the critical ones are two-fold, effective oversight and value creation, and sustainability.
The oversight role of the board looks at risk management and compliance. The board must have all answers concerning the question: what could go wrong and threaten our going concern?
But that is not enough. The board must also ask what tool does the Board uses to deliver its function of oversight? Each board must have a well-defined risk appetite and risk tolerance statements that are well linked to the strategic priorities. If your Board does not have a well-defined risk appetite, that Board is not adequately meeting its functions in terms of effective oversight. As the Board, you must continuously challenge the status quo, by defining and evaluating the risk management strategy execution against the set risk appetite. The risk appetite is like the braking system of the car. If the braking system is faulty, the driver is not in control of the car. The chances of causing or being involved in an accident while on the road are high.
As a Board member, you should know your mandate in the implementation of the risk appetite. The Board has to create and sustain value for the stakeholders. However fast you want to reach a destination, if you do not have in place a braking system, chances of arriving safely are minimal! As the Board, how well have you articulated the risk appetite to guide management of the acceptable risk taken while exercising their duties? But also, take calculated risks because opportunities come with risks.
The second role is sustainable value creation. This is all about strategy and its execution. The Board must oversee strategy execution to drive growth. A performing board needs an enterprise scorecard, that defines its priority areas of interest as it monitors the execution of the strategy. Has your Board articulated the enterprise scorecard to monitor strategy execution? The absence of the scorecard leaves the organization without a yardstick to measure growth as well as evaluate the performance of the executive committee.
Boards that have not defined the risk appetite and enterprise scorecard are ineffective.
For custom Board training, contact Summit Consulting Ltd. Empower your Board to lead with confidence and clarity.
Copyright Mustapha B Mugisa, Mr. Strategy 2022. All rights reserved.
