The Board

The Role of the Board

1. Value Creation, Accountability and Transparency

One of the primary roles of a board is to ensure that the interests of all stakeholders are being
considered. In addition to working to maximize the value of an economic outcome, the board also
ensures accountability and transparency. In a formal sense the CEO presents the ongoing progress of a
company and gives a periodic account of the business operations to the board. It is then the board’s
responsibility to establish appropriate procedures, set milestones, and assess performance.
Transparency ensures that all actions of the CEO and the board are conducted based on factual
information with sound judgement and the interests of all shareholders in mind. Functionally the CEO
works for the board.

2. Legal duties of the board

Board members are bound by two formal legal obligations: the duty of care and the duty of loyalty.
These are defined as follows;

Duty of care: A board member is to conduct all actions in a manner where they see no foreseeable
harm. A good board member needs to be attentive and prudent in making board level decisions, act in
good faith and conduct sufficient investigations to provide a logical basis for decisions. A board member
breaches his duty of care when he acts in a negligent manner or knows that the consequences of an
action could be harmful to the company.

Duty of Loyalty: A board member should ensure that interests of the company are always first and
foremost in his mind and that loyalty to the company supersedes any other vested interests he might
have. Duty of loyalty is breached when a board member puts his personal interests ahead of the
company, conducts inappropriate transactions that benefit the board member (known as self-dealing0,
or benefits personally from confidential information shared in the board room.

There are other additional duties linked to the duty of loyalty namely the;

Duty of confidentiality: A subset of the duty of loyalty, this requires a director to maintain the
confidentiality of non public information about the company.

Duty of disclosure: A director, pursuant to the duties of care and loyalty, is required to take reasonable
steps to ensure that the company provides its stockholders with all material information relating to a
matter for which stockholder action is sought.
Roles of Board Committees

Early in the life of a company, the board is often small, numbering between three and five members. At
this point in the company’s development, board business is often presented simulataneously to the
entire board. However as the a company grows, its board of directors and the amount of things the
board needs to consider, grows as well. As the level of oversight of the board increases, specific
committees, including audit, compensation and nominating committee are often formed. Existing board
members serve on these committees with board members often serving on more than one board
committee.

The Audit Committee

Oversees the company’s accounting and financial reporting processes and financial audits. The
responsibilities include ensuring timely audits, independence of audits, and communicating with the
independent auditors about any relationships or services that could affect the auditors’s objectivity and
independence.

Compensation/Renumeration Committee

Establishes CEO and executive officer compensation, oversees equity compensation grant policy and
hires outside experts to provide opinions on market based compensation ranges.

Nomination Committee

Recruit and orient new directors, manage CEO succession planning, and monitor governance processes.

Other Functions of the board

1. Ensuring survival. One of the most important tasks of a board member is ensuring that the
startup stays alive. Startups can run out of cash, face schisms between the founders or get sued
out of existence by patent trolls. While no one can guarantee survival, stepping up to help when
a company is in distress is a functional role of a board member.
2. Establishing financial Controls. Aboard establishes procedures and policies to establish financial
controls. These typically include (a) two signatories such as CEO and CFO, on most checks; and
(b) board approvals for major expenses which may be defined as an amount, for example any
expenditures above Ugx 1,000,000.
3. Developing of reporting guidelines. The board should aim to help the shareholder understand
the status of the business in a timely manner. Often a term sheet will include formal reportings.
Example language from the term sheet is: The company will deliver to such major investors (i)
annual, quarterly, and monthly financial statements and other information as determined by the
Board; (ii) thirty days prior to the end of each fiscal year, a comprehensive operating budget
forecasting the company’s revenues, expenses and cash position on a month to month basis for
the upcoming fiscal year; and (iii) promptly following the end of each quarter an up-to-date
capitalization table. Regardless of whether the formal reporting requirements are defined, the
 actual reporting is the responsibility of the CEO. A good board will encourage the a CEO to send
these reports out in a timely manner.
4. Conducting CEO performance assessment and conflict resolution. While many companies have
an internal review process, this often overlooked for the CEO. The board can provide the
framework for this and result in a robust CEO review on an annual basis. In addition, when
conflicts between the CEO and co-founders, or other members of the management team arise,
the board often plays the role of conflict resolver.

The board also has some technical duties relating to the performance of the company. The table below
show the responsibilities of the board and the CEO.
The Role of the Executive Chairman

In addition to the duties of the non-executive chairman the executive chairman plays a greater role in
developing and analyzing specific strategic projects at the company, talent management, coorperate
and business management. The executive should take care not to override the organization chain of
command.

Different Skills of a board Member

Company Bylaws

The bylaws of any company describe the decision-making process, establish a chain of command, and
define a governance structure. The various roles such as CEO, their process of election, and the
responsibilities of each are defined. The board of directors is also identified, which at inception for most
startups is usually made up of the founders.

The following sample bylaws describe the information of the board at the time of formation of the
company:

Board: The business and affairs of the Company shall be managed by or under the direction of the
Board.

Number of Directors: The board shall consist of one or more members. The number of directors shall be
determined from time to time by resolution of the Board. The board shall consist of utmost 3 founders
and the rest must be independent directors.

Election, Qualification, and Term of Office of Directors: Directors shall be elected at each annual meeting
of stockholders. Each director shall hold office until such director’s successor is elected and qualified or
until such director’s earlier death, resignation, or removal.

Meetings: The board of directors shall meet at least once quarterly unless otherwise by a vote of
majority of Directors. The CEO together with the lead director/Executive chairman shall draft the agenda
and send it the directors three weeks in advance before the meeting.

Meeting Length

Remote Attendence

Orienting Your Board Members

When a new board joins the board, the CEO together with the existing board members, should take the
responsibility for orienting the new board member. New board members should be familiar with the
legal structure and capitalization of the company, understand the current business model, and be up to
speed on the status of the company. Below is what you can use to orient a new board member.

Bios of current board members, committees, and their contact information.

Review of materials: board handbook, policies, past minutes

Board meeting schedule

Current board policies and practices, including committees, decision-making procedures, liabilities