Boards are legally obliged to exercise their due diligence to ensure that the organization is able to fulfill its goals, has a sound strategic plan and does not get into financial or legal problems. However, the way the boards participate in the exercise of their duties can differ dramatically and is largely dependent on the specific circumstances of the business.
Boards often make the error of becoming too involved in operational issues that should be left up management or are unsure about their legal obligations for the decisions and actions taken on behalf of a company. This confusion often results from not being able to keep up with the evolving demands on boards, or from unexpected issues such as unexpected financial crisis or staff departures. Most of the time, this can be remedied by taking time for discussions about the challenges faced by directors and by giving them instructions and a simple set of documents.
Another common error is that the board over-delegates its power and decides not to review the issues it has delegated (except for the tiniest of NPOs). In this instance the board loses its evaluation function and can no longer assess whether these operational activities contribute to a satisfactory performance for the organization as a whole.
The board must also establish the governance structure, which includes how it will work with the general manger or chief executive officer. This includes determining how the board will meet regularly, how its members will be selected and removed, and how decisions will be made. The board must also create information systems that online document management are able to provide accurate information on the past and future performance to support its decision-making.
