The Importance of Having a Board Charter

I’ve been working with a number of Boards in terms of refreshing their governance and/or setting up their governance. One of the starting points is the Board Charter, or the Board terms of reference.

Why have a charter? In any organisation, whether you’re not-for-profit, small business or businesses of any size, Board Charter is one of the first things you should put in place. I’ve seen this in a lot of start-ups, especially in the for-profit sector where a group of people get together, they start their business, and then it all falls apart. Quite often that’s because they haven’t agreed how they’re going to work together. How are decisions made? How are things decided? That’s your Board Charter. The Board Charter is your first evidence point in terms of ‘how we do things here’. That’s something you want to agree right upfront so you know how things are going to be decided. How are outcomes decided in those meetings? Does it have to be consensus or majority? If there’s a stalemate, how is that decided?

What do you include in a Board Charter? The Board Charter should talk about the Constitution. That’s where the directors are getting their power from. That’s the main starting point governance document of the organisation. How do directors get appointed to the Board? How many directors should be on the Board? Are there any specific requirements in the Constitution that need to be met before someone becomes a director? When directors are brought on, when directors are removed, how often that happens, what skills they need to bring? Eg if you’re working in the NDIS space, do they need to have the right approvals prior to joining the Board? Do you check criminal history, or things that will help protect your organisation?

How frequently are you going to meet as a Board? What things are coming to the Board in terms of papers? Are they coming a week before the Board meeting? Is there going to be a committee structure set up as well? If so, what are those committees going to be doing? How do they interact with the Board?

Like all governance documents, it can evolve, so as your organisation changes and grows, you can evolve this document.

If you are wanting to have a Board that has diversity, it may be that the people who have initially set up the organisation don’t represent a diverse Board. That’s often the case because it’s a group of people who know each other who start these organisations, and because they know each other, they have a lot in common and not necessarily a lot of diversity. One of the challenges, especially on the newer not-for-profits is to help build that diversity on Boards. What skills do you want on the Board? What lived experience do you want? If you want people with lived experience in certain aspects, or if you want gender diversity, age diversity, ethnic diversity, if you want that built into your Board – include that in the charter. When you go to recruit, you’ll be looking at your charter and see the things that are important.

The next thing in terms of the charter is how the Board’s going to operate. As the organisation grows, an important part is delegating authority to others so that it’s more than just the Board who can do things. At any stage of your not-for-profit, you may not have every policy that is best practice. You might not have a performance review policy or skills matrix or a recruitment policy, but if you have something stated in your Board Charter to give direction on how you want to do it, at least that gives you a starting point. This is why I start with the Board Charter because it should touch on a lot of the areas of how your organisation operates. If your Board is only meeting every three months, that will inform how much authority your CEO will need to be able to continue for three months without needing to come back to the Board.

The last thing with the Board Charter is, it allows information to be passed on to future directors. Also, if things do go wrong at a Board level, if there is aggravation or differing point of views on how the organisation should be run it is an evidence point show what was agreed on. That doesn’t solve all arguments, but it does give you a way to get through those issues.

That’s why the Board Charter is important and one of the first documents I look at in terms of understanding how the governance of an organisation is working and if we want to review it and improve the governance, the starting point for me is always the Board Charter.


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