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Boards have a legal requirement to exercise due diligence to ensure that the company is able to achieve its mission, has a sound strategy and doesn’t become involved in legal or financial issues. The way in which boards take on these responsibilities differs widely and is dependent on the circumstances.
A common error is that boards are too involved in operational issues that should be left to management, or they aren’t aware of their own legal liability for the decisions they make and the actions they take for the benefit of the organization. This confusion often results from not being able to keep up with the ever-changing demands placed on boards, or from unanticipated issues such as unexpected financial crises and staff resignations. Most of the time, this can be prevented by scheduling discussion about the challenges faced by directors, and by providing them with guidelines and basic written materials.
Another mistake that is common is that the board delegates too much power and decides to not review the things it has delegated (except for the tiniest of NPOs). In this case, the board loses the evaluation function and cannot assess whether the operations contribute to the satisfactory performance of the organization.
The board should also come up with the governance structure, which includes how it will work with the general manger or chief executive officer. This includes determining how the board will meet regularly, the manner in which its members will be chosen and removed, and how the decisions will be made. The board must also establish information systems that provide valid data on past and future performance in order to assist in making its decisions.