To improve the performance of the company, the Board and management need to have a mutual understanding of their respective roles and responsibilities. Fundamentally, it is the role of management to make operational decisions, to properly inform the Board of material events and issues, and to seek and be guided by the advice of the Board. It is the Board’s role to review the strategic and operational plans, to review progress against goals, to hold management to account for its decisions and actions, and to review performance of management.
The following list assigns responsibilities to either the Board or Management or both:
| ACTIVITY | RESPONSIBILITY |
| STRATEGIC PLAN: | |
| Initiate strategic planning process | Either |
| Strategic planning session (off-site) | Both |
| Draft strategic plan | Management |
| Review and approve strategic plan | Board |
| EXIT PLAN:
Develop exit plan Review and approve strategic plan OPERATING PLAN: |
Management
Both |
| Develop annual operating plan | Management |
| Develop functional plans: development, marketing, sales, human resources, facilities, and others as required | Management |
| Approve annual operating plan | Board |
| Approve functional plans | Not required |
| FINANCIAL PLAN: | |
| Develop financial forecast | Management |
| Develop annual budget, including revenue, expense, capital budgets | Management |
| Develop monthly cashflow projection | Management |
| Develop financing plan | Management |
| Approve budget, cashflow projection, and financing plan | Board |
| Establish limits for spending, material contracts and decisions | Board |
| REVIEW: | |
| Prepare performance reports on achievement of goals and objectives of strategic plan, operating plan and budget: | Management |
| – note variances, explain causes, suggest mitigation | Management |
| – approve mitigation plan | Board |
| – recommend changes in operating plan and budget | Management |
| – review, approve (or disapprove) changes in operating plan and budget | Board |
| Approve expenditures outside budget | Board |
| Approve expenditures, contracts, decisions outside limits | Board |
| Hire external auditors | Board |
| PERSONNEL: | |
| Hire, review, compensate, replace CEO | Board [1] |
| Recommend Officers for appointment | CEO |
| Approve Officers | Board |
| Hire, review senior management | CEO |
| Compensate senior management | Board |
| Hire, review, compensate, replace staff | Management |
| BOARD AND COMMITTEES: | |
| Recruit Directors | Both; see Board Review |
| Elect Directors | Shareholders at AGM; Board between AGMs |
| Appoint Chairman | Board |
| Appoint Committee members | Board |
| Appoint Committee Chairman | Committee |
| Develop Committee mandate | Committee |
| Approve Committee mandate | Board |
| Plan Board meetings and Agenda | see Organizing a Board Meeting |
[1] Venture Capital term sheets usually stipulate that the VC investors reserve the right to hire and fire the CEO. This should be strongly resisted. The CEO choice is a fundamental responsibility of the Board. Without it, the Board is neutered. The VCs may appoint a Director to the Board, but not usurp its powers.