Reasons to have a Board Charter in your business

In a couple of earlier vlogs I was talking about Shareholder Agreements and Family Charters, and I mentioned a Board Charter. And I've had a couple of people come back to me and say what is a Board Charter, what does it do, and why would we have one? So I just want to give you a bit of a rundown as to what a Board Charter does and where it may be appropriate for your business.

The Institute of Directors has Four Pillars of Governance Best Practice and the Second Pillar is around having an effective Governance Culture and that's where a Board Charter really fits in.

You don't need to over engineer things in small businesses, so the company that might have a Board Charter might have multiple shareholders or multiple directors, and they're looking for a tighter governance piece around what they do.

So what's the benefit of a Board Charter?

Think of a Board Charter as a position description or a job description for the Board. It says as a Board, this is what's important to us and this is what we're going to do.

Some of the reasons that you might have a charter are: it gives clarity for all parties; and it sets out the responsibilities between the CE or Managing Director and the Board.

So what are some of the things that you might cover in a Board Charter?

The first aspect is what is the role of the Board? What are they there to do? What are the governance responsibilities that are really important to them?

The second aspect is around the relationship between the CE, or the Managing Director, and the Board or primarily the Chair. What happens, how do those conversations happen, what are the expectations, what is the Board looking for from the CE or Managing Director?

The third aspect is around the communication piece overall. For a Board to function really well it needs to cover off a whole lot of things and this is just putting a bit of structure around some of those things. It might also talk about Board remuneration, it might be around committees, it might be around appointments, might be around shareholder engagement or stakeholder engagement.

So generally a Board Charter is really saying as a Board we believe these things are important to us and we want to have some structure and documentation around it. It doesn't have to be over-engineered, doesn't have to be anything complicated, but good clarity leads to good decision making and good decision making normally leads to good profitability.

For more about putting together a Board Charter, give me a call on 021 748 142 or flick an email to john@planaconsulting.co.nz

Thanks very much and until next time, take care out there.