While every board will face its own unique set of circumstances, there are some obstacles that almost every director will need to handle during their time on a business or nonprofit board.
Here are 5 challenges commonly faced by board directors and how they can be overcome by any organization.
1. Guiding business communication
The board is a key element in a company's communication strategy — the tone and style of an organization always comes from the top. As a result, the board needs to fully understand the company's mission and goals so they can properly guide management on how the business should communicate.
A lack of board guidance can result in brand communication that's confused or contradictory. Here, leadership from board members can help ensure that the company is able to communicate both well and with consistency.
Board members should also familiarize themselves with some of the common board communication mistakes that can muddle a business's communication strategy.
2. Balancing risk and opportunity
In order to help guide the strategy of the business, the board of directors needs to be able to evaluate what may present opportunities and what may present risks for the business.
To provide the best insight possible, board members should have at least a broad understanding of what risks the business faces operationally, strategically and financially.
3. Following board duties
This is one area where nonprofit boards and business boards differ somewhat. While most business boards consider themselves to be bound by two primary duties — care and loyalty — nonprofit boards are often considered to be bound by a third; the duty of obedience.
This duty requires board members to ensure the nonprofit follows all relevant laws and regulations, as well as the organization's bylaws, and be regularly searching for ways to leverage their resources, insight and connections to help fulfill the organization's mission.
4. Managing board-CEO communication
The board has a complex relationship with the business they oversee. Board members don't have the consistent information needed to actively lead the business, but still need to demonstrate leadership and be willing to make big judgments about the company — like asking whether or not the CEO is performing well, or if the business is performing for its stakeholders — and provide guidance based on those judgments.
If oversight is too light, small problems that could have been avoided with board guidance can easily grow in size and become significant obstacles over time.
In order to provide the best guidance possible, the board should regularly keep in touch with the CEO and other executive staff. The board should be willing to provide more than just light oversight, and ideally will offer guidance or push back on CEO decisions if they feel the business isn't performing well for stakeholders.
5. Shareholder activism
The threat of shareholder activism puts pressure on board members to be capable of responding to the needs of their shareholders. The board should have the in-depth knowledge needed to properly field activist requests. Activist shareholders won't always be wrong in their requests, but they won't always be right either. As a result, board members will need to rely on their own judgment and knowledge of the company when handling shareholder activism.
Board members should be aware of the risk factors that can make businesses more susceptible to activist shareholders, and be prepared to potentially defend against them. The board may be called upon to communicate with investors and major stakeholders if, for example, a shareholder launched a vote no campaign.
Overcoming common board challenges
There are a number of common challenges that every board of directors is likely to face, no matter the organization they oversee. Communication, risk management, fiduciary duties and shareholder activism can present serious challenges for any business — and, as a result, board members need to be prepared to face them.
In general, board members should equip themselves with a broad understanding of their organization's mission and the potential threats it faces. In providing oversight, the board should be able to offer regular guidance to executive staff without trying to directly manage organization functions.