In early stage technology companies, the Board is more proactive in advising management on a range of operational issues, and holding management accountable for its decisions, actions, or lack of action.
That said, however, the Board does not overturn management decisions, nor substitute its judgment for the judgment of management. It does not make operational decisions in lieu of management. To do so would usurp management’s proper role and involve the Board too deeply, both of which would be harmful to the company.
To manage the balance between oversight and meddling, on important issues the Board should request that management present to the Board for its approval a recommendation based on the facts and analysis of the case. The Board should review the report, and probe management’s analysis of the facts and how the analysis supported its decision and recommendation. The Board should ensure that management has considered all of the material facts and outcomes.
The Board can and should withhold approval of management’s decision and recommendations if the analysis is weak or does not support the decision and recommendations, and request management to return with an improved report. Of course, if the Board believes that the recommendation is contrary to the best interests of the company, it should withhold approval. In this way, the Board leaves the responsibility for recommendation and action with management, while providing oversight and guidance.