The Corporations Act 2001 2001 provides that 'the business of a company is to be managed or under the direction of the directors'. Collectively, the directors are known as a board of directors.
In the case of some other organisations (e.g. incorporated associations) an organisation will be run by a committee which consists of 'members' rather than 'directors'. The board of directors acts on behalf of shareholders in overseeing and governing a company. Generally, it is the board's responsibility to identify an organisation's direction and goals, and management's responsibility to decide how to implement these plans.
In practice, the role of the board is to supervise an organisation's business in two broad areas:
- Overall business perfomance - ensuring the organisation develops and implements strategies and supporting policies to enable it to fulfill the objectives set out in the organisation's constitution. The board delegates the day to day management of the organisation but remains accountable to the shareholders for the organisation's performance. The board monitors and supports management in an on-going way.
- Overall compliance performance - ensuring the organisation develops and implements systems to enable it to comply with its legal and policy obligations (complying with statutes such as the Corporations Act 2001, adhering to accounting standards) and ensure the organisation's assets are protected through appropriate risk management.
NFP board responsibilities
Specific responsibilities of a not-for-profit (NFP) board include:
- Driving the strategic direction of the organisation
- Working with the CEO to enable the organisation to obtain the resources, funds and personnel necessary to implement the organisation's strategic objectives.
- Implementing, maintaining and (as necessary) refining a system of good governance that is appropriate for the organisation
- Reviewing reports and monitoring the performance of the organisation
- Regularly reviewing the board's structure and composition, so that these are appropriate for the organisation
- Appointing – and managing the performance of – a suitable CEO
- Succession planning for the CEO
While the above points are also applicable to for-profit boards, NFP boards also face a unique range of issues, such as:
- Difficulties in defining and measuring organisational effectiveness
- Transgression of role boundaries
- The negative impact of the structural compositions of some NFP boards, including those arising from representative models
- Funding dependencies and constraints