One rule sums up the whole lesson: the board governs and does not manage; executive management manages and does not govern. When the two roles blur, oversight is lost, and the monitor becomes the monitored.
1 The board’s duties
- Strategic direction: approving the plan, the objectives and the budget.
- Appointing leadership: selecting the CEO, evaluating their performance and planning succession.
- Performance oversight: tracking financial and operational results against the plan.
- The risk and internal control framework: approving it and satisfying itself that it is effective.
- Policies and authorities: approving the policies and the delegation matrix and overseeing their application.
- Disclosure: approving reports and statements before they go to shareholders and regulators.
2 The types of board member
| Type | Who are they? | Note |
|---|---|---|
| Executive member | Holds an executive post in the company alongside their board seat | Close to the detail, but unfit to oversee themselves |
| Non-executive member | A board member with no executive post | Has time for oversight and strategic thinking |
| Independent member | Non-executive, with no relationship to the company or its major owners that would impair their independence | The safety valve of decision-making, and required on the oversight committees |
What does independence mean?
Not that the member is a stranger to the sector, but that they have no interest that would make them accommodating: no recent employment there, no material dealings, no significant family tie, and no large ownership stake.
3 Separating the chair from the chief executive
One of the most important governance rules is that no single person should hold both the chairmanship of the board and the chief executive role. The board oversees management, and it makes no sense for someone to oversee themselves, appraise their own performance and set their own pay.
4 The board’s committees
Audit committee
The financial statements, internal control and the external auditor
Nomination
Board membership, capabilities and succession plans
Remuneration
Pay policy and linking it to performance
Risk
The risk framework and the limits of acceptable risk
Committees examine matters in depth and then submit recommendations — the decision stays with the board
The audit committee is the most important of these for oversight: it supervises the integrity of the financial statements, nominates the external auditor and monitors their independence, oversees the internal audit function, and considers control findings and their escalation. That is why it is required to be composed mainly of independent members, with no executive member on it.
An internal auditor found discrepancies in the inventory at one branch and informed their executive manager, who asked to “settle the matter internally”.
In a well-governed organisation: internal audit reports to the audit committee, not to executive management, so the finding goes straight to the committee, the committee commissions an independent investigation, and the board is informed of the outcome. That independent line is the difference between real oversight and oversight in name only.
5 How the board works
- Regular meetings with an agenda circulated in advance together with supporting papers.
- Written minutes recording the discussion, the decisions, any objections and the names of those present.
- A charter for the board and its committees setting out duties, authority, the number of meetings and the quorum.
- Periodic performance evaluation of the board, its committees and its members.
A board on paper
The most dangerous form of weak governance is a board that meets only to sign: no papers before the meeting, no debate, and no minutes recording an objection. A board like that protects nobody.
Lesson summary
- The board governs and oversees; executive management delivers and manages.
- Board members are executive, non-executive or independent — each with a role.
- No single person holds both the chairmanship and the chief executive role.
- The four core committees: audit, nomination, remuneration and risk.
- Internal audit reports to the audit committee to secure its independence.
6 Test your understanding
Three quick questions
Pick the answer you believe is correct and you will see the result immediately.
1. Who should the internal audit function report to?
Reporting to the audit committee preserves its independence, so it is not auditing whoever it reports to administratively.
2. A board member who works as an executive manager in the same company. How are they classified?
Holding an executive post makes them an executive member; they cannot be counted as independent.
3. What is the main purpose of writing meeting minutes?
The minutes are the evidence for accountability: they record what was discussed, what was decided and who dissented, and they protect the objecting member.