The board is more than a mandatory task, and an efficient board can be a resource for the organisation. It is therefore important to be aware of how the board should be organised and what competences the board members should possess. This text has been written for the work of boards of private limited companies, but is also ideal for use as a starting point for corresponding work in other organisational forms.
The board is elected by the general meeting and must consist of at least one member. A good board often consists of people with different competences who can complement each other in order to help the organisation achieve its goals.
It is the board that sets goals for the organisation, organises the work and carries out checks. The board must:
Board members only represent themselves on the board. However, board members are expected to report to those who elected him or her to the board through the appropriate channels.
Although board members represent themselves on the board, they have a responsibility to work in the best interests of the organisation they have been elected to serve.
The chairman of the board is responsible for ensuring that relevant matters are considered by the board. Board members and the general manager can require specific matters to be considered by the board. A summons with an agenda and relevant board documents must be distributed to the board members no later than one week before the board meeting is scheduled to be held in order to give the members sufficient time to familiarise themselves with the matters ahead of the meeting.
The person who prepares the matter, who could be the general manager, chairman of the board or both in partnership, must present a recommendation with a proposal for a decision for the board.
The chairman of the board is responsible for the dialogue with the general manager.
Board members can submit matters which they wish to be considered by contacting the chairman of the board.
Board matters must be considered in a meeting or in some other appropriate way. This could for example be a conference call, video meeting or e-mail.
Board meetings are held as and when necessary. The Companies Act does not stipulate any requirement as regards the number of board meetings which must be held during the year. However, to ensure that the supervisory role is fulfilled, the board should be summoned to meetings at least once a quarter.
It is the board which, through its strategic work, establishes goals for the general management and which adopts annual plans for the business. The chairman of the board is responsible for the completeness of the board work and for ensuring that the annual plan is followed.
Board meetings are normally chaired by the chairman of the board, who is responsible for ensuring that the board can take decisions/adopt resolutions concerning a matter.
The order and structure of board meetings is important. It is therefore an advantage to consider board matters in three stages: presentation, discussion and decision.
Unless the articles of association stipulate otherwise, the board is deemed to be quorate when more than half of the board participates in the board's consideration of a matter. A precondition for the board being quorate is that all the board members have been summoned to the meeting. In the event of a tied vote, the chairman of the board or the chairman of the meeting will have the casting vote. It is normally recommended that the board should reach unanimity through discussion. The general manager is not a member of the board. He or she has a right to speak but not to vote.
During the consideration of a matter, both the board members and the general manager can request an addition to the minutes, i.e. so that they can make their opinion concerning a matter known in the decision. This is particularly relevant in the event of disagreement, and will be of importance in the event of the subsequent assessment of the board members' liability to pay compensation. A board member may only cast their vote concerning matters which they have been involved in considering.
The question of disqualification normally arises with regard to matters where it is open to question whether a board member has a special interest in the matter. 'Special interest' means that the matter must be of 'special importance' to the board member or the board member's associates. Special interests must be a material personal or financial interest which conflicts with the interests of the company. The degree of conflict of interest is decisive as regards whether or not the board member is considered to be disqualified.
The Companies Act contains no further provisions concerning the board's consideration of the matter of disqualification. Anyone who may be disqualified should not normally participate in discussions concerning their own qualification or be involved in the decision as to whether they should be disqualified. It must be determined before a matter is considered whether anyone should be disqualified. The person or people who may be disqualified must leave the board room during the consideration of the matter.
The general manager must prepare minutes/meeting minutes (document template for board minutes) stating the decisions that were taken during the meeting. Board minutes must at least state the time and place, the names of the people who took part in the meeting, the method of consideration and the board's decisions. If a member of a board was not involved in the consideration of a matter because of absence or disqualification, this must be stated in the minutes.
The board minutes must be dated and signed by all the board members who took part in the consideration. Remarks concerning the minutes will be considered in the next board meeting.
Board members may be held liable to pay compensation for damage/losses which they cause the company, shareholders and/or others to incur in their role as board member. The provisions of the Companies Act concerning board liability apply to everyone who holds a position as a board member in a private limited company.
A board member is liable to compensate damage or loss which he or she has 'wilfully or negligently' caused another to suffer in their capacity as a board member. 'Wilfully' means that something was an intentional act, while 'negligently' means that the person concerned was careless. A key question in connection with the assessment of whether something is wilful or negligent will be whether the board member has acted in contravention of applicable statutory provisions. Or whether the board member has acted in accordance with what can reasonably be expected of a normally competent board member under identical circumstances. Board liability is an individual liability and each board member must be assessed individually.
The board's responsibility for assessing whether the company has adequate equity is a typical example of a situation where the board can be held liable to pay compensation. The requirement for adequate capital entails an obligation for the board to monitor and assess whether the company has adequate equity and liquid assets. The requirement also means that the board must not carry out actions which would result in the equity becoming inappropriately low or the liquidity becoming poor.