Legally boards are required to ensure that a company is able to fulfill its mission and has a sound plan of action and doesn’t fall into financial or legal problems. The way boards are required to fulfill these obligations is different and highly dependent on the specific circumstances.
Boards often make the error of getting too involved in operational issues that should be left up to management or are unclear regarding their legal responsibility for decisions and actions made on behalf of a company. This confusion is usually caused by not keeping up with the evolving demands on boards, or from unanticipated problems like sudden financial crisis or staff departures. It is often resolved by taking time to discuss the problems facing directors and providing them with simple, written materials and an orientation.
Another common error is that the board is able to delegate its authority and decides to not review the things it has delegated (except in the smallest of NPOs). In this case the board is unable to perform its evaluation function and cannot decide whether the operations contribute to a satisfactory performance for the company.
The board must also establish an effective governance system, including how it interacts with the general manager or CEO. This includes setting the frequency of board meetings and how board members will be selected and removed, as well as how decisions will be made. The board should also create information systems that can provide data on past and upcoming performance to support their decision-making.