Good governance is essential for utilities and energy companies to effectively navigate the complex and rapidly evolving industry landscape. At its core, governance involves establishing a framework of policies, systems, and structures that enable the governing body to make sound decisions and make progress toward achieving the organization's mission.
To help you improve board culture and performance, this article explores:
Essential board roles and responsibilities
Key board policies
Habits of an effective board
The importance of committees
Standard practices to develop board skills
Board roles and responsibilities
Implementing strong governance practices in utilities and energy companies begins with clearly defining the board’s essential roles and responsibilities. While each organization will have specific scope, authority, and responsibilities for their board, there are generally several primary responsibilities of every governing body:
Establish the strategic framework and set the direction of the organization
Boards guide the organization’s overarching strategy and typically shape the strategic framework for the organization — including its mission, vision, and value statements, as well as key policies. Together, these tools create a framework that can be used to guide decision-making and set the tone for company culture.
Ensure accountability
Boards typically review reports, dashboards, and other data to ensure:
Progress is being made toward strategic goals
Services are provided to the customers or stakeholders in an appropriate manner
The organization’s financial position is sustainable
Provide goodwill and support
As organization leaders, board members often represent the organization as a whole when building industry partnerships, seeking resources, or speaking with members of the community.
Board members must uphold ethics considerations and adhere to a code of conduct at all times. They must navigate conflicts of interest and maintain confidentiality outside the boardroom to ensure the integrity of decision-making processes.
Evaluate management performance
Evaluating management performance is essential for holding executives accountable, while fulfilling board oversight and fiduciary responsibilities safeguards the organization's assets and investments.
Effectively collaborating with management
Boards aren’t generally involved in day-to-day operations, but they nonetheless play a strong role in setting the direction of the organization. This is primarily accomplished through their management of the Chief Executive Officer (CEO). By setting organizational and performance goals for the CEO and providing support and advice, the Board supports the CEO — and, by extension, the rest of the staff — to make progress toward the organization’s goals.
Effective boards focus on outcomes, rather than daily operations. It’s important for boards to strike a balance and avoid micromanaging, allowing management to handle operational matters while focusing on strategic direction and decision-making. The table below describes the fundamental distinction between the role of the board versus management.
What is fiduciary duty?
In addition to the responsibilities described above, fiduciary duty is a fundamental obligation that board members have towards the organization they serve. As a board member, individuals are entrusted by customers and shareholders to oversee the organization and make decisions in its best interest, prioritizing the organization's welfare over personal gain.
The board is charged with a fiduciary duty, and has three primary legal duties:
Care. This requires board members to possess the necessary competence and judgment expected of their role, staying informed, asking questions, and seeking help when needed.
Loyalty. This emphasizes putting the organization's interests above self-interest, avoiding conflicts of interest, and acting in an unselfish and responsible manner.
Obedience. Board members must stay objective, honest, and trustworthy, investigating any irregularities that may arise.
By fulfilling these duties, board members uphold their fiduciary responsibility and contribute to the organization's success and integrity.
Board policies
Board policies provide clear guidelines and frameworks for decision-making, consistency, transparency, and accountability across all levels. They help mitigate risks, clarify expectations, and align actions with the organization's mission, values, and legal requirements.
Must-have written policies
Policies generally fall into two categories: must-haves and good-to-haves. Must-haves include:
Conflict of interest
Code of conduct
Cybersecurity assessments and policies
Gift acceptance and expense policy
Joint venture policy
Whistleblower policy
Document and retention and destruction policy
Conflict of interest policies
A policy governing conflicts of interests is an important policy for a board to adopt. To have the most impact, the policy should be in writing, and the board and management should review the policy regularly.
A conflict-of-interest policy should:
Require those with a conflict, or who think they may have a conflict, to disclose the conflict or potential conflict
Prohibit interested board members from voting on any matter in which there is a conflict
Code of conduct policies
The board’s success depends on the trust and confidence earned from shareholders, employees and customers. A code of conduct lays out the board expectations and guiding principles for appropriate workplace behavior.
A code of conduct policy should be designed with consideration for the organization’s values, shareholders, customers, and professionals you work with, and the service you provide.
Habits of effective boards
Effective governance habits are crucial for any organization to succeed. Highly effective boards typically demonstrate the following behaviors:
Think and act strategically. This involves having a clear vision and plan for the future.
Respect. Respect the shared constituency by understanding the needs of stakeholders and working towards meeting those needs.
Decision-making. Mastering small group decision-making and understanding the elements of teams and teamwork. The board-staff partnership should be honored, and board time and energy should be allocated appropriately.
Establish rules and procedures. Clear rules and procedures should be established for meetings, and systematic and valid assessments of policy implementation should be conducted. Regular evaluation of the board's performance is also important.
Learning and development. Continuous personal learning and development as a leader is crucial for effective governance.
By following these habits, organizations facilitate efficient and effective operations.
The board-staff partnership
In addition to effective habits, a strong board-staff partnership is a critical component of effective governance. Boards that foster strong relationships with their CEO often implement the following practices:
Regular check-ins between the CEO and board chair are important to aligning both parties on organization goals and priorities. Candid and frequent communication is necessary for the board and staff to work collaboratively towards common goals.
A commitment to no surprises promotes trust and transparency between the board and staff.
Setting clear expectations keeps all parties on the same page and working towards the same outcomes.
Thoughtful reflection on performance is necessary to identify areas for improvement and to celebrate successes.
By prioritizing the board-staff partnership and following these practices, organizations can create a solid foundation that supports achievements and success.
The importance of committees
Boards often establish committees to support various areas of work. Common Board committees include executive, governance, finance, investment, and audit.
In particular, the finance, investment, and audit committees play crucial roles in are responsible for the financial health, stability, and accountability of an organization. These types of committees provide essential oversight, guidance, and expertise, contributing to the overall governance and financial well-being of the organization.
Developing board skills
Effective governance hinges on the board members’ collective capabilities to fulfill their roles, make informed decisions, and provide strategic guidance to the organization.
Actively developing board member skills ensures members possess the expertise and competencies necessary to navigate complex challenges, foster innovation, and drive sustainable growth.
Onboarding new board members
The first step in board development is a strong and consistent onboarding process. Effectively onboarding programs typically introduce the new member to the following areas:
History of the organization
Strategic plan
Financial statements
Budget
Organization chart
Bylaws
Roles and responsibilities
Expectations
Ongoing education for all board
Effective boards often engage in continuing education related to their board responsibilities on at least an annual basis. Ongoing development for the entire board often includes additional education on the following topics:
Fiduciary responsibility
Risk management
Environmental, Social, and Governance (ESG) reporting
Diversity, Equity, and Inclusion (DEI)
By providing regular training in areas that are critical to your operations — including governance and finance — the board can approach issues from the same baseline knowledge.
