This is a very important subject. Many Board Members do not take their role as a Director seriously, and many Management do not give respect to the Board that is due. If things go well, there is no issue. But when there are problems, it emerges that the Board never played it's expected role.
You may want to consider the judgement in the Centro case in Australia (just google Centro) where it was determined that all board members were required to exercise due diligence in making board judgements and even if the domain was not in their area of expertise. For example, a logistics expert cannot rely on the financial experts on the board when deciding whether to approve the financials. This is proving to have significant implications in practice.
The modern corporate model implies the combination of legislative and self-regulating distribution, where universal principles of transparency, accountability, fairness and responsibility are secured.
Boards have common drawbacks that are recognised in unsuccessful organisations:
Time spent: The limited amount of time makes it difficult to really engage on the critical issues (e.g., strategy) and spend adequate time with customers and investors to really understand the mindsets of key stakeholders required to truly guide the company.
Board makeup: Often boards are looking to fill open seats with other active operating executives. But given the time it takes to really have impact; how can an active operating executive have the time to be a “great” board member and do their day job? Hence non-executive directors play a very important role.
Lack of diversity and key expertise: An absence of diversity continues to be a major deficiency in terms of gender, race, ethnicity and experience – and that defect hinders the ability to obtain diverse perspectives. Another growing problem is the shortage of board expertise in increasingly critical areas: technology, cyber security, research and analysis, talent acquisition, and customer growth and care, among others. My research has supported this as a key indicator.
Knowledge gap: Directors lack of understanding of their companies create flaws that constrain the effectiveness in the board and often cause management to limit interactions with their board by trying to manage through meetings, rather than viewing the board as a helpful source of new ideas and expertise and a sanity check on strategy.
With these factors in mind board due diligence under corporate governance is project specific and in some cases country specific due to local regulations. The current issue relies on legal precedents and little legislative push.
Diligence in governance is essential for the long-term survival and success [of an
institution] and depends greatly on the skills, experience and knowledge of its
directors. Due diligence and due care are supposed to characterise the functions of fiduciaries like Boards of Directors. Several court cases have decided to make Directors jointly and several liable for the actions of a company. (Please do a short search to find the due diligence requirements of a fiduciary. Some of the links posted by colleagues should also be useful). Businesses are becoming so complex that its risks cannot be monitored only by bank supervisors. Regulations alone cannot respond to every single risk. The safety and soundness of companies require the upfront involvement of shareholders and their representatives on the bank boards. Boards, therefore, need to adopt policies that promote private counterparty supervision as the first line of defense for a safe and sound business processes. Membership of a board of directors of an institution can no longer be a matter of personal prestige; it really carries a significant burden of personal responsibilities. Directors are the guardians of corporate stability, which is one of the most precious public goods. Directors have to ensure that the corporate strategy as conceived and executed by management has an appropriate risk-reward profile; that financial data accurately represent the institution's condition; that risk mitigation measures are adequate to protect depositors’ money and shareholders’ funds: in sum, that management does its job without incurring excessive risk.
In discharging their oversight responsibilities, directors often find it essential to work with supervisors in an alliance to protect financial stability. The guidance contained in this document about the functions of board subcommittees is precious to outline the architecture and content of this emerging cooperation
between boards and supervisory authorities. In developing and transitioning countries, there cannot be sustainable economic growth without substantial increased due diligence requirements of Directors of corporate institutions.
Multiple (interlocking) directorship can affect ability of directors to discharge their duties diligently. Concentration of particular profession i.e. chartered accountants or lawyers is also seen as a major drawback.
I think that such relationships exist then when the basis for management is dictatorship and not freedom. The directors and managers are successful who have high ethical culture with good professionalism. The manager must be excited to hear different opinions. The cultural human understands that he comes to temporarily on earth and will go forever.