A board charter is a policy document that clearly defines the respective roles, responsibilities and authorities of the board of directors (both individually and collectively) and management in setting the direction, the management and the control of the organisation.
Organisations have considerable discretion regarding the contents of their board charters. Some prefer a short document that touches on major governance issues but is not overly prescriptive. Others regard the charter as a top-level policy document that must address a wide range of governance issues (board manual).
We recommend boards develop two documents to describe their organisation’s governance arrangements – a board charter (for external publication) and a board manual (for the use of the directors). The distinction between the two documents being:
- Charter: as previously noted, a charter is a short document, designed for external stakeholders, which provides a high-level overview of the organisational governance framework and the board’s role and responsibilities.
- Manual: this is a longer document than a charter, generally 50 to 150 pages, depending upon the complexity of the organisation’s governance framework. It brings together all the essential governance information that directors need to know to effectively understand and carry out their duties.
In summary, a manual is designed to be a comprehensive reference tool for board members and should address issues such as:
- the role and powers of the board;
- the common and statutory legal duties and responsibilities of directors;
- information in relation to board and committee meeting processes, including emergency decision making;
- the role of the board committees in the governance and decision-making process;
- details of board-approved policies;
- an overview of delegations of authority;
- the difference between the role of the board and that of the CEO, the board committees and management;
- monitoring of organisational culture; and
- key board functions, such as strategy, risk, compliance and stakeholder engagement.
A comprehensive list of topics that might be included in a charter and a manual are shown in the table below.
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Board Charter |
Board Manual |
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1. Introduction 1.1 The board and management 1.2 The role of the board 1.3 Board committees 1.4 Delegations of authority
2. Board structure 2.1 Number of directors 2.2 Types of directors 2.3 Board skills and diversity 2.4 Terms and conditions of appointment
3. Role of individual Directors 3.1 Director's general roles 3.2 Director's code of conduct
4. Role of the Chair 4.1 Appointment of chair
5. Role of the Company Secretary
6. Role of the CEO
7. Compliance, Risk Management and Internal Controls 7.1 Compliance 7.2 Risk management 7.3 Internal controls
8. Board Meetings 8.1 Disclosure of interest
9. Board and CEO Evaluation 9.1 Board evaluation 9.2 CEO evaluation
10. Remuneration 10.1 Director remuneration 10.2 Executive remuneration
11. Director Induction and Development
12. Review
13. Publication of Charter |
1. Introduction 1.1 Purpose 1.2 Structure 1.3 How to use 1.4 Organisation overview 1.5 Purpose of organisation 1.6 Board’s source of authority 1.7 Governance framework
2. Part A – Defining Governance Roles 2.1 Role and powers of the board 2.2 Board structure 2.3 Role of individual directors 2.4 Role of the chair 2.5 Role of the company secretary 2.6 Role of the CEO 2.7 Role of management
3. Part B – Key Board Functions 3.1 Strategy formulation 3.2 The board and CEO 3.3 Monitoring 3.4 Compliance 3.5 Risk management 3.6 Policy management 3.7 Networking 3.8 Stakeholder engagement 3.9 Decision making
4. Part C – Effective Governance 4.1 Board meetings 4.2 Board meeting agenda 4.3 Board papers 4.4 Board minutes 4.5 Board calendar 4.6 Board committees
5. Part D – Improving Board Processes 5.1 Board performance evaluation 5.2 Director induction 5.3 Director remuneration 5.4 Director protection 5.5 Director development 5.6 Queries and concerns
Appendices
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The benefits of a board manual include:
- assists the organisation’s leadership in delivering good governance;
- documents the policies that the board has decided upon to meet its legal and other responsibilities;
- informs senior management of the board’s role and responsibilities;
- serves as an induction tool for new directors and senior managers;
- greatly assists in establishing effective operating procedures for a board; and
- develops of a shared understanding of the board’s role throughout the organisation.
To guide boards in establishing and continually developing effective governance policies and practices including board charters or manuals, we use the Corporate Governance Practice Framework, which is published in Directors at Work (Thomson Reuters, 2012) and developed by advisors at Effective Governance. This framework has been adapted for many Australian organisations as the basis for their governance documentation since its inception.