How To Improve Training For Directors

Saturday, April 22, 2006

Bob Garratt, Journal of Business Strategy, http://

Better Business & Planning Practices

Abstracted from: The Real Role Of Corporate Directors: Balance Prudence With Progress
By: Bob Garratt Board Performance, London, England
Journal of Business Strategy - Vol. 26, No. 6, Pgs. 30-36

Most misunderstand their duties.
According to corporate governance scholar and consultant Bob Garratt, a director has four primary tasks: devise policy, develop strategy, oversee management, and ensure accountability. Boards seldom have formal training for directors, and most members have only the haziest notion of what the role entails. Since directors typically have management backgrounds and since some hold both board and management seats in the same company, often board members confuse the two functions. Recent regulatory changes have highlighted the board's governance and oversight functions and the need for independence, so some directors recognize their oversight duties. Yet hardly any acknowledge the broader strategic functions of a board member. In addition to oversight of management and regulatory compliance matters, directors must set the purpose, long-term goals, global business operations, and strategies that define the company.

Directors are not managers.
Despite the fact that some individuals serve as both a director and a manager, these functions are quite distinct. If one person wears both hats, the author urges that special care be taken to distinguish which role is operative in any particular activity. The first duty of a director is to the company itself, not to management. The directors­not the managers­must devise the strategies and tactics the company will use to implement the goals set by the board. They must comprehend the global economic conditions and markets, then decide where the company should go and generally how it should progress toward its goals. Management's role is to then implement these broad dictates from the board. The directors must hold the managers accountable but, as long as the board's governance and policy concerns are met, should not micro-manage and second-guess the executives.

Directors need training to function properly.
Shareholders wrongly assume that directors know what they should be doing. The author finds that four out of five board members perceive their roles in managerial rather than directorial terms. Companies should institute formal, ongoing training for directors so that all understand the proper functions of the board: to oversee management and ensure regulatory compliance; to hold managers responsible for failure to implement the board's policies or to achieve compliance; to create long-term policies defining the company's purpose and proper activities; and to devise strategies for achieving corporate goals. Even with deliberate board education, it will take years to transform the board into independent policy, strategy, and oversight units. Every member needs to stay current in every board duty. Require directors to spend time simply reading business news, the author suggests. Assign each director one of the major areas of board responsibility to track jointly with another director, a senior executive, or even a key customer or shareholder. Change the assignment and the pairings every few months. Thus, over the course of the year, each board member will have some direct input into each of the board's major functions.

Abstracted from Journal of Business Strategy
published by Emerald Group Publishing Ltd.
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