Documenting Governance

Building Your Board

By NACD Staff


Find guidance and sample documents to define director responsibilities, board structure, and fundamental board responsibilities.

Establishing Sound Board Policies and Procedures

Companies establish a board of directors to oversee and advise management on a company’s operations. Wherever a company is in its life span—from its conceptual phase to full maturity—it can benefit from an effective board. This requires dedicated and ongoing “board building,” a term used to describe the creation and maintenance of a board of directors. This, in turn, requires sound policy documents and processes and an effective procedure for creating and updating them. While there is no “one-size-fits-all” approach to building a board, companies can use the following guidance and customize the sample documents provided to help develop or refresh their boards' processes and policy documents.

Identifying a Mission

The company’s purpose should drive its behavior, shape its governance, and position the company to create sustainable, long-term value. The organization's purpose should be clearly articulated and documented in the form of mission, vision and value statements. Such documents have multiple purposes. For example, for a nonprofit, a strong mission statement that resonates with the public can help the organization attract donations. For a private company, it can help to raise capital—if the mission can generate a profit. For all types of companies and organizations, a compelling mission statement can attract good employees, inspire high performance, and guide boards and management in setting priorities and making strategic decisions. For additional guidance on corporate purpose, see The Future of the American Boardroom: A Framework for Governing into the Future.

Establishing Governance
Corporate Bylaws contain the basic rules for managing the organization’s business and regulating its affairs, and they are one of the first items to be established by the board. Bylaws, which are set out in a written document adopted by the board, summarize procedures related to company and board structure and procedures for conducting meetings. Companies should understand the requirements of the location(s) where the company is domiciled and incorporated and should consult with an attorney.

The bylaws, which must be approved by shareholders in for-profit corporations (whether public or private) and can only be amended by shareholders, typically cover the location of offices, formalities concerning the holding of shareholders’ and directors’ meetings (e.g., when and where, and how shareholders will be given notice); voting entitlement of shares; powers, duties, and qualifications of directors and officers; and the establishment of standing and special committees. Given the need for shareholder approval, it is best to keep this document to a minimum of requirements. Nonprofit organizations do not have shareholders; in such organizations the body approving the bylaws is the board itself.

Another fundamental document is the corporate governance guidelines, a document which elaborates on the bylaws. These guidelines provide information on the policies and procedures adopted by the board. They are intended as a flexible framework within which a board may conduct its business and do not require shareholder approval. For example, whereas the bylaws may say that the board will establish committees, the corporate governance guidelines will name the committees and set forth the minimum and maximum number of members the committees will have.

To promote an ethical culture, boards will adopt a code of ethics and business conduct, which outlines the principles and standards expected to govern the behaviors, actions, and decisions of the directors and employees of the company. Along with this, organizations will establish a whistleblower policy to guide reporting and investigation of suspected wrongdoing.

Holding Meetings

From the very first meeting held by the founding board to establish their bylaws to subsequent meetings in which they make decisions about the ongoing business of the organization and the evolving composition of the board, meetings are a crucial aspect of director service. To ensure that the board and committees cover the full range of matters before them, most boards find it useful to prepare an annual board calendar that will show when certain topics will be covered at board meetings. This will be complemented by a meeting agenda sent in advance of each board or committee meeting.

Following each meeting, typically within two weeks, the corporate secretary or other designated person should produce board meeting minutes. These documents are generally considered internal documents and are not typically published publicly. However, they are discoverable in litigation, so boards do well to invest time in them. (For guidance, see this NACD FAQ on board calendars and meeting agendas.)

The team preparing the board calendar will vary according to company type. In a large, complex public company, calendar preparation may be the role of a designated independent board leader (independent chair or lead director) working with the corporate secretary and in consultation with the CEO and committee leaders. In contrast, in a small private company, the calendar may be determined by a CEO-owner with the help of trusted advisors. But whoever determines the topics for the calendar, they should ensure that the calendar syncs with significant annual events, such as the annual shareholders' meeting.

Forming and Operating Committees

Boards may delegate many of their decisions to committees, communicating expectations for their work in the form of committee charters. Companies will typically form an audit committee, compensation committee, and a nominating and governance committee. Some boards may delegate risk oversight to a dedicated risk committee (especially in the case of large financial institutions).

These committees, like the board itself, will plan ahead for their work, so will typically have an audit committee calendar, a compensation committee calendar, a nominating and governance committee calendar, and a risk committee calendar.

Detailed committee reports should be presented to the full board to inform non-committee members.  Each of these reports will follow the agenda for the meeting in question, with additional discussion items.

Recruiting and Onboarding Directors

Directors with the skill sets, expertise, backgrounds, and diverse perspectives that can support the company now and into the future are an essential ingredient to an effective board.

Many boards maintain a board skills matrix to help them consider the organization’s strategic goals when seeking board members. The matrix will include skills, expertise, and experience necessary to provide oversight of the strategy now and into the future, as well as demographic information (e.g., race/ethnicity, gender, age, LGBTQ+ status, geographical location). When looking for directors to fill a spot, many boards retain professional search firms to expand their search.

Each new board member on a public company board must sign a conflicts of interest questionnaire. The results of this questionnaire will help to determine whether the director is independent enough to serve on a committee deemed independent and help identify any potential conflicts of interest the director may have that would necessitate their recusal from voting on certain matters. 

Retaining Advisors

Retention of advisors is an important part of board building. Typically, the service contract with the advisor is made with the board or committee. Contracts might include an agreement with the company's outside auditor (managed by the audit committee), an agreement with a compensation advisor (managed by the compensation committee), and an agreement with a director recruitment firm (managed by the committee in charge of board composition, typically the nominating and governance committee).

Managing Records

Perhaps the ultimate document needed by boards is one about document management—namely a records retention policy for board documents such as minutes of board meeting and notes taken by directors. For example, a typical policy might say that minutes must be retained as long as the corporation or its successor exists, but notes should be destroyed as soon as minutes are approved (subject to state and federal laws). This policy is designed to protect the company and board in the event of litigation.

Ongoing Monitoring

Board building is an ongoing activity. Boards should implement mechanisms to assess the board’s effectiveness, such as annual board and committee self-evaluations and director evaluations. These are highly confidential documents that are not offered to the public and may even be restricted to the nominating and governance committee members.

A board performance evalutaion tool will typically be based on the board’s governance guidelines. Committees may use checklists based on the committee charters: audit committee self-evaluation checklist, compensation committee self-evaluation checklist, nominating and governance committee self-evaluation checklist, and risk committee self-evaluation checklist. Many boards find it useful to develop an individual director evaluation tool as well.