In today’s business ecosystem, companies and businesses strive to achieve compliance, and in doing so, companies rely on the board of directors who are responsible for steering the organization towards its strategic objectives, effectively managing the business, ensuring regulatory compliance and carrying out administrative operations of the company. To ensure the board of directors functions effectively, a company requires a well-drafted BOARD CHARTER which would serve as one of the company’s laws. Although it might seem like a mere formality, a well-crafted board charter can significantly impact the quality of governance and, consequently, the success of the organization
The Board Charter is a document that states the duties of the board of a company and outlines the policy that binds the board members. It is more like a guide that contains the principles governing the board. This is not the same as the code of corporate governance, but more like an internal guide for the roles and responsibilities of the board of a company.
The Board Charter states the extent of powers and responsibilities of each of the members of the board, as well as the board in general. Although any company can decide to incorporate a board charter, the Board charter is of great importance to all companies, especially companies in their formative years. Examples of successful companies with board charter include: Nestle Nigeria Plc, First Hydrocarbon Nigeria Company Limited, Access bank Plc, MTN Group, MRS Oil Nigeria Plc, to mention a few.
Importance of the Board Charter
The board charter is extremely essential for the following reasons:
- It helps each of the members of the board to fully understand their roles and responsibilities.
- It enhances transparency in the company, specifically among the board members.
- It increases the overall performance of the board, as each member is fully acquainted with the tasks necessary in actualizing the goals of the company.
- It mitigates or reduces possible conflicts that may arise among board members.
- It necessary for effective corporate governance in the company.
- It helps to align the board activities with the values and legacy of the company.
Components of a Board Charter
The Board Charter of a company varies, depending on the type of company, its goals, values, and the type of board . The key components in the board charter include:
- The Composition and structure of the board.
- The role and responsibilities of each of the board members.
- The order of proceedings during board meeting.
- The ethical standards and code of conduct of the board.
- Conflict resolution process of the board.
- Induction and continuos education of the board
- Risk management and compliance issues.
- Amendment procedures of the board charter.
Considerations
In drafting a board charter for your company, here are some essentials you should put into consideration.
- consider the company’s purposes and unique needs
- Conduct an in-depth research into the best practices and industry standards so as to align such with the board charter.
- Seek the Stakeholders opinion and contribution on the proposed board charter
- The drafters of the charter must do well to insert clauses to accommodate flexibility and adaptability for future changes.
Enforceability of the Board Charter
One of the key issue in corporate governance is enforceability and sustainability of rules and policies implemented by the company . One major way to ensure enforcement of the board charter is to first create awareness and be sure that the board is fully acquainted with the content of the charter.
- Ensure the Board constantly review and update the charter to be up to par with the industry standards.
- The board in enforcing the board charter must ensure it aligns with the needs of the board and company by extension per time, and this can be achieved by evaluating the priorities of the company.
- There must be constant compliance monitoring and also swift addressing of nonconformities of the board charter.
- A very crucial mode of enforcing the board charter is by placing consequences for non-compliance in the provision of the board.
Conclusion
In an ecosystem where corporate missteps can lead to severe repercussions, the role of a board charter in strengthening governance cannot be over-emphasized. It acts as a strategic tool for aligning the board’s functions with the organization’s strategic goals, ensuring accountability, and fostering a culture of transparency and ethical conduct. As businesses continue to navigate an increasingly complex regulatory and competitive environment, the importance of a well-defined board charter in driving effective corporate governance will only continue to grow, ensuring that their boards are not only compliant but also capable of steering the company towards sustained success and growth.