IMHO: Why individual board members shouldn't direct management
OPINION: For a new manager, one of the scariest and most unsettling things is a request or a directed question from an individual board member. Do they speak for the whole board? Do you have to action it? How do you respond?
In corporate governance, the delineation between the roles of the board and management is fundamental to a well-functioning organisation. This separation is particularly important when it comes to the authority of individual board members.
A key principle of effective governance is that no individual board member (unless specifically authorised by the board) has the authority to direct management independently. This authority rests with the board as a collective body.
However, in practice, the boundaries between governance and management can sometimes blur, particularly when board members ask questions or offer comments that, intentionally or not, may feel like directives to management.
Why should individual board members refrain from giving direction to management outside of formal board decisions and how can management navigate the pressure that may arise from individual director interactions?
Board authority is collective, not individual
Board members in New Zealand are bound by collective responsibility. The board, as a whole, governs the organisation, sets the strategic direction and makes decisions. An individual director has no inherent authority to make decisions or issue directives to management outside of this collective decision-making process.
A common misconception is that board members, due to their position, can direct the actions of management on their own. This is not the case. The board only speaks with one voice and that voice is the outcome of deliberation and decisions made during board meetings.
Directors must resist any temptation to direct managers or imply that a suggestion is a mandate. Unless the board has expressly delegated authority to an individual board member or a committee, no single director can dictate the actions of the CEO or other members of the management team.
This principle is not just a matter of best practice but also a legal safeguard. It ensures that all directors are equally involved in key decisions and that no one director can overstep their governance role into management territory. This distinction also helps avoid any confusion within the organisation regarding the proper chain of command and ensures that the CEO and senior management have clear lines of accountability.
The importance of formal meetings and resolutions
Board meetings/discussions are the primary forum where governance decisions are made. During these meetings, board members are encouraged to ask questions, raise concerns and contribute ideas. It is crucial that any conclusions or agreed actions are clearly summarised and formally recorded in the minutes. This helps prevent misunderstandings and ensures that both management and the board have a shared understanding of what needs to be done.
Without clear and precise documentation of board decisions, management might misinterpret individual suggestions or queries as directives. For example, a director might raise a concern about a particular operational issue during a meeting, but unless the board collectively agrees that this issue requires action, it remains just a topic for discussion, not a mandate for management.
The Four Pillars highlights the need for precise documentation in board minutes: “Discussions should be carefully summarised, and decisions captured clearly, including who is responsible for follow-up actions.” This ensures that only those actions agreed upon by the full board are pursued by management.
Managing the pressure of director’s comments
While board members cannot give directives outside of formal meetings, management often feels pressure to act on individual director comments or questions. When a board member raises a concern or suggests a course of action, management might perceive it as an implicit directive, even if it is not formally endorsed by the board. This pressure can arise for several reasons:
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- Power Dynamics: Senior directors, especially those with significant experience or influence, may unintentionally project authority when asking questions or making comments. Even though these comments are not formal directives, management may feel compelled to act, fearing future repercussions if they are perceived as unresponsive.
- Informal Communication: Outside of formal board meetings, individual directors may engage with management informally through emails, phone calls or in-person discussions. In these settings, management might interpret a suggestion or concern as something that needs immediate action, especially if the director has a strong voice or a leadership role (e.g. committee chair) on the board.
- Ambiguity in board-management Interactions: In some cases, management may not clearly understand whether a comment made by an individual director is a personal observation or an unofficial direction. This ambiguity can lead to management taking action on issues that have not been formally decided by the board.
Managers can be in a in a difficult position; they are tasked with following the board's strategic direction, but they also want to maintain positive relationships with individual directors.
To avoid these challenges, both directors and management need to establish clear boundaries and communication protocols. Clear communication protocols, like cc’ing the chair, or specifying that requests for information will usually be shared with the full board to maintain transparency, can be helpful.
Informal communications
Outside formal meetings, board members may have legitimate reasons to communicate with management. This could involve seeking clarification, gathering additional information or offering advice. However, it is essential to maintain clear boundaries. These interactions should never cross into giving directives or implying that management must take action based on a single board member’s views.
Board members should be careful to frame such interactions as requests for information or suggestions, rather than instructions. For instance, a director might reach out to the CEO to discuss a concern or ask for an update on a specific issue.
While this type of communication is permissible, it must be clear to both parties that no action should be taken unless it reflects the collective will of the board.
In practice, informal communications are valuable signals that help guide management’s thinking, but they do not carry the weight of a board resolution. This distinction allows directors to engage with management productively while respecting the boundaries.
If a board member believes that an urgent action is needed, the correct course of action is to raise it with the board chair so that the matter can be discussed by the full board.
Using questions and ideas as signals for further discussion
Questions and suggestions raised by board members during meetings should be viewed as indicators of where discussion may be needed, rather than as directives. When a director raises an issue, it signals to the rest of the board that the matter warrants consideration. The board can then decide whether to take formal action, request further information or address the issue at a later date.
For example, if a director suggests that management should explore a new market opportunity, this idea would typically be discussed by the board as part of its strategic deliberations. If the board agrees, it may pass a formal resolution instructing management to investigate the opportunity further. However, if the board does not reach a consensus, the suggestion remains just that – an idea for future consideration, not an action item for management.
This approach allows the board to benefit from the insights and expertise of individual directors while maintaining the integrity of the collective decision-making process. It also ensures that management receives clear, unambiguous instructions that reflect the will of the entire board.
How management can respond to individual directors
To address the pressure that management often feels in response to individual director comments, it is important to establish a culture of transparency and clear communication. When a director raises a concern or suggestion outside of a formal board meeting, management should feel empowered to clarify the nature of the comment.
For example, management can confirm whether the issue should be raised for discussion at the next board meeting or whether it requires immediate action.
In some cases, management may need to politely remind directors that decisions should be made collectively by the board. This ensures that management is not responding to fragmented input from individual directors, which could lead to inefficiencies or even contradictions in their actions.
The chair creates clarity
Clear communication prevents confusion. The role of the chair is critical in this regard. As the leader of the board, the chair must ensure that directors understand the collective nature of their authority. The chair should also act as a buffer, managing the flow of information between the board and management, ensuring that all communications are aligned with formal board decisions.
The board chair plays a vital role in ensuring that all board members understand their responsibilities and the limits of their authority. It is the chair’s responsibility to ensure that discussions within board meetings lead to clear, actionable decisions and that these decisions are communicated effectively to management.
The chair also has a duty to prevent individual directors from overstepping their governance role. This involves ensuring that all board communications, whether inside or outside meetings, are consistent with the collective decision-making process. If a director is seen to be giving instructions to management outside of the boardroom, it is the chair’s role to step in and reinforce the boundaries.
The chair should ensure that board members contribute to discussions within the collective context and understand that individual views do not represent board decisions unless agreed upon. This ensures that directors remain focused on their governance role and do not inadvertently interfere with management’s responsibilities.
To prevent confusion, it is vital that all board members and management understand the distinction between discussion and decision. Directors should feel empowered to ask questions, raise concerns and offer advice during board meetings. However, unless these discussions lead to formal resolutions, they should not be interpreted by management as instructions.
Management, for its part, should be encouraged to seek clarification when needed. If a CEO or senior executive is unsure whether a particular comment or suggestion from a board member represents a directive, they should seek confirmation from the board chair or ensure the matter is raised in the next board meeting for formal agreement.
AI was used in the creation of this article.