Definition of a Board Charter, and why your board should have one
What is a Board Charter? Should your board write one? This article explores the definition and benefits of the Board Charter, a document which is extremely useful for aligning expectations but used less frequently in some countries than in others.
A Board Charter is a written policy document prepared by the company’s board and ideally reviewed and updated annually. It sets out the roles and responsibilities of the board members, chair, and other key roles to ensure clarity and alignment. It is not meant to be a repetition of corporate governance rules, but instead, to specify how this board would like to work together with and relate to executive management and other key stakeholders. It is essentially a framework of guiding principles for the board.
It is not a “given” that all board members agree on or fully understand the scope of their roles within this particular board, or that new (or even more seasoned) board members have a clear idea of exactly what is expected of them, so it is our recommendation that boards consider creating and implementing each their own Board Charter.
Content of the Charter
Examples of areas to consider include:
- Overall purpose of the board, such as
- “The purpose of the board is to ensure that the company delivers long term value creation for the shareholders and for the benefit of society.”
- “The board ensures that the company has the right management team who constantly and efficiently implement the agreed strategy and work toward agreed, defined goals.”
- Responsibilities of the board. As stated above, this section is not so much about governance (which is a given) but more about the culture and expectations regarding how and to what extent this board should be involved in these matters at this company.
- “The board, together with executive management, is expected to review and set the company’s mission, vision, values and standards.”
- “The board should be involved in the development of the company’s strategy.” (define to what extent)
- “Board members are expected to engage directly with executive managers and other key stakeholders.”
- Responsibilities of the chair and other key roles – for instance
- “Acts as the company’s leading representative, which will involve presenting the company’s aims and policies to the outside world.”
- “Ensures that the board is effective in its tasks of setting and implementing the company’s direction and strategy.”
- “Is expected to provide leadership and facilitate board discussions.”
- Vice-Chair / Deputy / Co-Chair / Senior Independent Director SID or related roles
- “This person is appointed by the board and acts a sounding board for the Chair.”
- “Serves as an intermediary for the other board members when necessary, such as in the event of the Chair having a conflict of interest.”
- “Provides annual performance feedback to the Chair, on behalf of other board members and executive management.”
Board room culture
- Definition of the desired culture and tone, as well as how it will be evaluated and continuously developed, such as
- “Board members foster a culture of mutual trust and integrity, supportive of the Chief Executive Officer and management in an open and transparent environment, while respecting the right for a robust discussion.”
- “Board members are urged to regularly communicate their individual views and concerns to the board. The board members are encouraged to reach out and have dialogue with the Chief Executive Officer and other senior executives when appropriate.”
- “Board members act in the interests of the company, not of themselves.”
- Agreement on to what extent this board has decided to follow national governance regulations, and in what areas they agree to do something different, along with the reason why, to comply with the recommendations
Benefits of the Board Charter
Individual board members are not always certain about what their own role is, how the board should work with the executive management team, and the exact roles of the chair and deputy with regard to the board and executive team. Each board has its own customs and ways of working, and there are many variations in terms of culture, to what extent board members are expected to be involved in company processes, etc. It is not surprising that there can be a lack of clarity on what board members should expect from other board members, key executives, or themselves.
When the Board Charter is reviewed every year, it provides a good foundation for discussion and alignment, and an opportunity for continuous learning and board performance improvement. The Board Charter is also an excellent document to use when onboarding new board members, ensuring they understand their responsibilities. In addition, publishing the Charter publicly is an important way help build a positive image for the company amongst stakeholders. Transparency and a drive for continuous improvement are always a welcome sign!
For more information or for help developing a Board Charter, please contact