What It Means to Serve on a Board of Directors

Membership on the board of directors for rural electric and telco companies is both a privilege and a responsibility. It is an honor to represent the constituents who rely on the stability, integrity, and quality of service that a public utility provides. It also carries the mandate to leverage one’s expertise, skills, and experience to ensure that the company pursues a carefully considered strategy and manages its operations with all due prudence and professionalism.

Whether your board members have provided years of service or are relatively new to their roles, it’s essential that they understand their legal responsibilities. A formal review creates the opportunity to assess their performance as guardians of the public trust and take corrective action, as needed.

The board’s principal responsibilities include the duty of care, the duty of loyalty, and the duty of obedience.

The duty of care requires board members to take an active part in organizational planning and make informed decisions. They must act in the same manner as a reasonable, prudent individual would in their positions.

In practical terms, the duty of care manifests in the development of corporate strategy as well as the operational framework through which it is carried out. Among the board’s key responsibilities is the selection and oversight of a chief executive to whom they delegate the company’s day-to-day management. In consultation with this individual, the board defines operational objectives for the company’s products, services, and programs and ensures that there are sufficient resources to pursue them. They monitor progress toward goals while offering input, advice, and tangible support.

The board ensures company resources get used in a reasonable, appropriate, and legal way. To that end, they set policies and procedures for the acquisition and use of resources. They work with the chief executive to set an annual budget that allocates resources to programs and activities. They ensure the company has adequate internal controls and monitoring systems to hold management and employees accountable as well as minimize opportunities for fraud and other illegal actions. They arrange for independent audits to assess the company’s financial condition as well as the effectiveness of its control systems.

The board meets regularly to review the company’s operations and discuss material deviations from plan. They also review financial reports to assess management’s performance and evaluate the resources required their stated objectives.

When acting on behalf of the organization, the duty of loyalty holds board members accountable for acting in the best interests of the company. To that end, each board member must avoid conflicts of interest (or the appearance of conflicts) when acting on the company’s behalf and refrain from participation in decisions that involve conflicts of interest or the appearance thereof.

A conflict of interest occurs when an interested party benefits financially directly or indirectly – e.g., through approval or negotiation of a contract, purchase, or lease in which there is a direct or indirect interest in the entity or individual providing the goods or services. Conflicts of interest also relate to non-financial benefits – e.g., use of company resources (facilities, assets) for personal gain, or securing preferential treatment for board members or their family, friends, and/or associates.

In addition to avoiding improprieties, the board should define and exemplify the corporate values and professional standards to which the members, senior management, and other employees must adhere. Acceptable and unacceptable behaviors are typically captured in a formal code of conduct along with supporting policies and procedures. The board must see to it that these directives are readily accessible and reviewed periodically with all affected personnel to ensure compliance.

The duty of obedience requires board members to ensure that the company complies with all applicable federal, state, and local laws and regulations. It also calls for holding themselves and their employees accountable to the provisions of the company bylaws, code of conduct, policies, and procedures.

The board must take action within its membership or the company at large whenever transgressions are reported and/or verified. To that end, the board needs to adopt a “whistleblowing” policy and a formal grievance procedure through which such claims are investigated and addressed.

Effective board governance is essential to the success of any company. When the board acts within a set of guidelines informed by the aforementioned duties, they establish a solid foundation on which to build a strong organization.

Aldrich has years of experience working with boards of directors for public utilities and telcos. Contact us if you would like to revitalize your board governance or need help with setting, reviewing, or revising company policies and procedures.