managing risk.pdf

26 Chapter 2 - Good Governance: Managing Internal Riskmeans to achieving this skill set is the continuous measurement of managers’ performance and professionaldevelopment.The Board of Directors: Effective StructureTo carry out its duties effectively, the board must establish a formal, participatory structure in which its rolesand responsibilities are clearly defined. 7 Some key considerations are discussed below.Board sizeBoard size varies from institution to institution. The number of stakeholders involved and their investmentin the MFI should determine the appropriate number of board members. In microfinance, boards normallyrange from between 5 and 25 members; boards with membership between 7 and 11 are the most common.Whatever its size, the board should be large enough to provide adequate staffing to complete the governancework, obtain the necessary funding, promote the institution, and ensure that a quorum regularly attends themeetings. However, the board should be small enough to make decisions efficiently and to develop a personalrelationship of trust among members. An odd number of seats will help prevent tie votes (though consensusdecision making is preferable).The board chairThe person who is chair of the board, or board chair, is responsible for providing leadership, presiding overmeetings, and guiding the disparate points of view of the board’s membership to consensus. The board chairshould regularly interact with the MFI’s top management. This interaction should be transparent and adhere toappropriate segregation of duties to avoid the appearance of collusion or impropriety. To be effective, a boardchair must possess a range of characteristics and skills. He or she should be “a good leader, navigator, planner,organizer, communicator, interpreter, confidant, liaison, conscience, caretaker and troubleshooter” (OregonSchool Boards Association 2009).The board chair and the CEO should not be the same person. While this has been a common practice incorporate governance in the United States, current views are veering from this practice. In the microfinancesector, this practice is now considered a warning sign that control of the institution may be too concentrated inone person (see box 2.5).7. This discussion of setting up an effective board structure draws from the Council of Microfinance Equity Funds (2005).