After the Memorandum or Incorporation, your Board Charter is the second most important governance document in a company.
It defines the director's duties, sets out responsibilities and liabilities but above all it is a valuable tool for the board and directors. In this article, we have compiled a list of 6 reasons why every company should invest time and effort into producing their board charter.
The reasons for having a Board Charter include:
- A solid appointment and removals process to appoint good directors who match the applicable scorecard and remove directors who are not participating or performing to the agreed expectations.
- Set expectations – clearly defined expectations is the first step of building the road to success. The Company must communicate to the board and directors what they expect and need them to do.
- Induction – the induction process has two legs, firstly the operations of the company and secondly the requirements, rules and expectations of Directors in the Company. The Board Charter is in essence a handbook for the newly appointed Director that is the backbone for the induction process.
- Support inexperienced directors by providing them with a framework of the tasks of the Board as a unit and the director as an individual. This Charter assists the Chairman and Company Secretary to groom inexperienced directors.
- Set the limits of authority so that directors and especially executive directors have a clear understanding of which decisions they can make and in turn which decisions need to be made by multiple directors or the Board as a whole. Having this document protects the company and the director as an individual from possible disputes and unnecessary litigation.
- Performance evaluations should be a gap analysis on where the directors or the Board as a whole need to improve. The charter should set the framework for future professional development and it should set the director at ease that the evaluations will not be a criteria for nominating directors.
The key issue to understand is that no matter how small or large a company's board is that the same issues need to be resolved at Board level. Further to that each sub-committee needs to ensure that it has a charter setting out its terms of reference.
Want to know more about how we can help you with your Board Charter?
Contact Alun Rich on firstname.lastname@example.org Tel +27 (021) 460 6477.