88. Directors have no authority

What this episode covers

SCRIPT It may seem weird to say that a corporate director has no authority, but not only is it true, it’s one of the most important elements of a board-based governance model. A quick refresher of the basics: every incorporated entity – for-profit, not-for-profit, charity, public sector, co-operative, etc. – has to have a board of directors. I think all of us acknowledge and accept at this point that the board has ultimate authority to make decisions inside the corporation. So, by extension, doesn’t that mean that directors have authority? The answer is an unequivocal “NO!” A board of directors only has authority collectively, meaning no individual director can make a decision on their own, nor does any one director have any more authority than any other. What directors DO have is a voice and a vote – which ultimately influence the decisions that the board makes collectively. So, for example, if a board member goes and tells the CEO to do something – anything, really – ranging from switching to a new brand of pens to selling the company, the CEO has no obligation to follow their direction…Unless, the direction comes from the whole board. Sometimes both boards and managers forget this fact. And honestly, it should come as a relief to most directors that they can’t just wave a magic wand and have the corporation do their bidding. It’s just too much responsibility!