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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).
Managing Risk and Creating Value with Microfinance27Box 2.5 Some “Do’s” and “Don’ts” for BoardsTo maintain the appropriate independence of the board and management, some direcon is provided asfollows:Do the following:• Clearly define roles between management and the board.• Separate the role of the board chair and the CEO.• Maintain distance from daily operaons by delegang authority for operaons to management throughthe CEO.• Set clear, measurable goals for management, and monitor performance against those goals.• Supervise the selecon, evaluaon, and compensaon of the senior management team.• Use board commiees (audit, finance, compensaon, personnel, <strong>risk</strong> management, and so forth) toperform specific funcons.• Require that members follow basic codes of conduct to carry out roles and responsibilies in good faith.• Make binding decisions as a group.• Work to achieve board consensus.• Require accurate, mely informaon in order to make good decisions.• Rely on external audits, independent internal audit reports, and third-party evaluaons to verifyreporng accuracy.Don’t do the following:• Form a board composed of friends of the CEO.• Appoint the same person as both CEO and board chair.• Allow management to occupy a major share of seats on the board.• Exercise too much oversight of management and interfere with its work.• Fail to meet regularly or meet in a pro-forma fashion.Source: Compiled by Tillman Brue.Some duties of the board chair include the following:• Serve as the chief nonexecutive officer (officer not involved in daily management) of the MFI.• Chair meetings of the board according to agendas developed together with the CEO.• Appoint all committee chairs within the board.• Take an active role in recruiting board members.• Oversee succession of board members.• Serve ex officio on board committees and attend their meetings when possible.• Evaluate the effectiveness of the board and its members, and ensure the board carries out its mandate.Board committeesIn well-functioning boards, most of the work occurs in committees. Committees meet before the full boardmeetings and discuss issues relevant to their specific mandate. They report any findings and progress to thefull board. Committee meetings may be supported by written agendas and recorded minutes. Common boardcommittees include the following:
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