Advice and Tips
Practical tips for new board members
Joining a board for the first time? – Here are some tips to get you started for new board members
In an increasing number of companies and corporations, employees are represented on the board of directors. Being a board member is demanding and challenging for both the individual chosen for the job and the company union group.
The system of electing employee board members was made into law early in the 1970s, and employees who have been board members have a great deal of experience – as do company union representatives and others who have followed along with their board’s work from the sidelines. Questions that often arise include: What exactly is a board matter? What can board members do to get a matter put on the meeting agenda? What role does the CEO play on the board? When can the board be ordered to remain silent on a matter? What does it mean when a board member is declared incompetent?
Defining board work
A board has the overall responsibility for managing and leading a company, ensuring a sound business organization and developing plans and budgets.
Board work differs from company to company, and often changes over time depending on the company’s activity and financial situation.
Company laws, including those on share ownership, have often been quite general with respect to board tasks and differences in the background and skills of board members and the CEO. All board matters and their distribution between the board and company management must be specifically adapted to the individual company/corporation. Practically speaking, board members must constantly assess if the board is handling matters that are relevant, at times taking the initiative to bring a matter up to the board themselves.
There are no hard and fast rules about what should be put on a board’s meeting agenda and what should not; rather, the problem is that boards sometimes stagnate in their understanding of what constitutes a board matter more than that the board’s meeting agenda is expanded to include “grey” matters that might or might not belong there.
A board’s rules of procedure should contain rules that state both the type of matters to be brought up before the board and the CEO’s duties in relation to it. While these rules are often written in very general terms, they can’t just set aside legalities, either, for instance in cases where an individual board member demands that a certain matter be brought up at a board meeting.
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While all board members have the same rights and obligations, employee-chosen members have in addition a unique task with regard to ensuring the best possible workplace and work environment.
For example: Local unions have responded to companies’ increasing use of hired labor and outsourcing of jobs with arguments that professional communities are eroding due to the loss of important competency. In reality, management’s task to make sure that the company has adequately qualified staff members to meet its challenges. In this particular instance, there’s a disagreement between the administration and local trade unions. Based on the fact that the board has among other things a mandate to ensure the company’s sound organization, it’s reasonable to expect the CEO to bring the board up to date on all company matters through periodic reporting. If this doesn’t happen, a board member can ask the CEO to describe a matter in more detail at a board meeting, after which follow-up actions may be considered. When company union representatives and board members feel the company’s competency and qualifications are being undermined in such a way that the company might exclude itself from an upcoming round of bidding, this matter must be brought up immediately before the board.
At the same time, a company board doesn’t handle the appeal if a trade union loses a case; rather, it makes the overall decisions on matters that are important for the company’s continued growth and success. This means that matters on which the trade unions and administration disagree are excluded from being considered by the board.
Also, an individual board member can demand to have a matter taken up at a board meeting. It’s been shown that it’s sometimes worth the trouble of bringing unusual matters up before the board. Any matter that employee representatives demand that the board consider must be well prepared in advance.
Practically speaking, board members often use other company union representatives as advisors and discussion partners in order to provide “quality assurance” to their board work.
Budgets and accounting are important points on the board’s meeting agenda; these often comprise a large portion of its supervisory responsibilities along with the company’s day-to-day management and general operations. It’s the individual board member’s responsibility to make sure that they have enough knowledge to understand the numbers being presented and ask the necessary questions about these numbers; at times, however, they might have to ask for an explanation of these numbers in order for them to be able to move forward in the discussion of this matter.
The board develops company strategy, draws up plans and budgets and ensures that the company has a sound organization. The CEO and management execute board decisions and periodically report back to the board on company activities, including deviations from plans and budgets, so that the board can make a course correction if necessary. The board supervises the company’s day-to-day management and general operations. For instance, it can demand that the CEO give it a detailed account of certain matters. Individual board members can also make the same demand. When it’s known before a board meeting that the CEO will be asked to make a detailed report on a certain matter, it may be appropriate to inform the CEO and board director about this situation beforehand.
In companies having an employee representative on the board, the board must adopt rules of procedure, which must contain rules on the matters to be considered by the board and the CEO’s duties in relation to the board. Experience has shown that adopting rules of procedure which require plans for restructuring, reorganizing and making significant changes to working conditions and employment should be brought to the board at an early stage.
Board members can take initiative
An individual board member can legally take a number of initiatives to the board for its consideration. They can ask the CEO to report on a specific matter and/or demand that a certain matter be taken up at an in-person meeting (and not for example on the phone).
A board can order any studies it considers necessary for performing its duties; it must order these studies if at least one board member demands that this be done. It can also be useful for a board to start an investigation of company management, for example because the company’s competency level has been negatively affected or it hasn’t followed through on the board’s guidelines or plans. The individual member’s ability to demand a study/investigation is especially relevant for those representing minority shareholders and, not least, for employee representatives who don’t have a majority backing for starting an investigation into company management. It’s been shown that situations sometimes occur where board members representing the company’s majority have access to information that the others don’t have.
Practical board work
In addition to decisions about what’s to be considered by the board and what the CEO’s tasks should be in relation to it, the board’s rules of procedure should contain rules on convening and meeting procedures. The legal system states that the CEO should in consultation with the board director prepare matters to be considered by the board. The law states that a matter is to be prepared and presented so that the board will have a satisfactory basis for considering it. It’s up to the board itself to adopt more detailed rules of procedure regarding its proceedings. The point is to adopt provisions that are considered necessary for ensuring the company’s future growth and success.
Board minutes should be written and contain all necessary information about a board meeting: time, place, participants, proceedings and decisions. When the board’s decision isn’t unanimous, the minutes must show who voted for the decision and who voted against it. Any member not in agreement with a decision can demand that their opinion be recorded in the minutes. The best way to ensure that dissenters express their own beliefs is to put them in writing during the meeting. If someone expects to be in the minority when voting on an important matter, it may be appropriate to make a few alternative drafts of this dissent before the meeting starts. The minutes can be completed and signed when the meeting’s over or sent to the participants afterwards (and signed at the next meeting). If the individual member disagrees with the board director’s meeting minutes – in other words, these minutes don’t reflect what actually took place – they can demand that a note be included in the minutes.
Duty of confidentiality
There are occasionally matters considered by the board to be of such a nature that competitors and other unauthorized persons mustn’t know anything about them. These include plans for new production methods and other trade secrets, plans for buyouts and shutdowns, etc.
Board members have a general duty to maintain the company’s interests in a justifiable manner and not spread information that can harm the company. But even if board members have a duty to treat information given to the board confidentially, this isn’t the same thing as keeping this information to themselves. There is broad agreement that employee representatives can discuss confidential matters with their advisors, for example the board of the local trade union, provided that these people treat the information in a way that doesn’t cause it to leak out. Matters that are subject to the duty of confidentiality are almost always the type of matters that are also covered by the obligation to discuss them, and as a result should be given to the company union representatives as soon as possible. Employers sometimes maintain that board members should take it up with the board director if they want to use advisors. Yet while it may be appropriate to discuss the use of advisors in connection with decisions on duty of confidentiality in the rules of procedure or something similar, it is certainly not in concrete matters. It must be up to the board members themselves to manage their use of advisors. There are several reasons that make other company union representatives relevant advisors for board members, including their extensive knowledge of the company itself. Discussing a matter with experts in the organization is also a possibility.
There is no opportunity in The Companies Act to exclude employee representatives when individual matters -- or certain aspects of these matters --are being considered because the information being discussed is of a sensitive nature.
Union representative and board member at the same time?
Opinion is divided as to whether it’s a good idea for someone to be a board member and head of a company union group (or have some other central union role) at the same time. If they have only one of these roles, it may be easier to deal with matters that have negative consequences for members, for example downsizing. On the other hand, it can be very advantageous to have firsthand knowledge of complicated and important cases, something that very often only board members get through among other things presentations made by experts in a particular field. This kind of information may be difficult to advance in a comprehensive way, including to management, which often has only secondhand knowledge when they’re going to discuss a matter with union representatives. In practice this means that the combination of being both a board member and union representative can in certain complicated and important matters be advantageous. There is also a middle way where the head of the union group is a board member, and one of the other union representatives is responsible for representing important matters on behalf of the company union group. The structure chosen must be determined locally in order to work for a particular company; there’s no one structure that works for every company.
Avoiding conflict of interest
Generally speaking, board members have a right and obligation to take part in all board meetings and handle all matters brought before the board. The Company Act makes exceptions from this rule when a matter has special significance for an individual board member, meaning they have a significant personal or financial interest in the matter. If these conditions are present, they are disqualified or incapacitated from processing and deciding a matter. In other words, incapacity means a ban against participating in processing and deciding a matter because you have a particular connection with it. The same applies if a matter has the same significance for an individual who has a close relationship with a board member. The point of the decision is that the interest must be so strong that it is suitable for acting as a motivation for the member’s standpoint in the matter. Put simply, a board member is not disqualified when the board processes plans that have consequences for groups of employees, not even when the board member belongs to that group, for example separating the part of the business in which the member works or approving central guidelines for wages and personnel policies. However, they will be disqualified when the board must decide if the company should stop cooperating with a company that the member’s partner runs. The extent to which a board member who has gotten strongly involved in a matter as a union representative is disqualified when the board processes the matter must be decided on an individual basis. The board as a whole decides if a member should be disqualified. It is important that employee-chosen board members who might end up waiting out in the corridor during matters where it's important to express employee interests should make sure they have a substitute representative who can jump in and take over as needed.
Board member responsibilities
Board members and members of the corporate assembly may like anyone else be held responsible for paying compensation to the company. For instance, the company can demand that board members compensate it for losses that they have intentionally or negligently caused the company to suffer. Substitute board members can also be held financially responsible for providing compensation for company losses if they’ve taken part as board members in the decisionmaking process that forms the basis for the liability claim. The practical form of loss is property damage. If the company feels it has been subjected to a loss for which the board can be required to compensate it, the board is more or less liable for the entire loss. If the board has acted unanimously, all board members will be liable. However, differences with regard to liability and use of the ‘moderation rule’ (lempingsregelen) can have significance for the scope of the collective liability. There are also questions concerning individual liability and many other factors that must be taken into account during an evaluation of what’s taken place, including whether everyone had the same information and/or real opportunity to have acted differently. It is in this kind of situation one truly sees the value of being a member of a trade union.
Board members who intentionally or negligently violate decisions appearing in The Company Act or in accordance with the law can be punished with fines or, in aggravated circumstances, spending up to one year in prison. Any board member who shows aggravated incomprehension while performing their duties for the company can be punished with fines or, in aggravated circumstances, spending up to one year in prison.
It’s important for a board member to act sensibly and understand what they’re agreeing to at all times. If they don’t see the consequences of a board decision, they must find out what this consequence is before agreeing with their fellow board members. Similarly, they should always speak up if there’s any point they believe might have serious consequences for the company.
Board members may be found liable and have to pay out of their personal wealth. This is why several companies offer board insurance policies to their board members. There are several kinds of insurance policies that can be tailored to the individual company’s needs. A common type of board insurance policy covers liability members bring on themselves through negligence, for example when the board should have understood that the company was heading toward bankruptcy. However, insurance doesn’t cover so-called «accidental loss», which can come about when board members have known that the situation was irresponsible but still took a chance on keeping the company going. Insurance policies must be read very carefully. Regardless, it’s always wise to record any disagreement among board members. Having a board insurance policy gives board members no reason to relax with respect to their need to perform high-quality work at all times.
Board meeting information
It’s been shown many times over that employees appreciate being given information from board meetings. In some companies this is done by the communications department in cooperation with one or more employee representatives. This information may be distributed in the form of a circular newsletter, as a poster on an information board or as a post on the company’s intranet.
The employee-chosen board members might also need to inform other employees themselves about board happenings in addition to the matters and standpoints being discussed by board members.
Board work and company union representatives
According to The Basic Agreement, whenever a CEO presents information to a board, this is no replacement for the employer’s duty to discuss this information with company union representatives as well. The company’s responsible for informing and discussing any matter with union representatives that may be significant for working conditions and employment. The union representatives’ rights and obligations vary somewhat in different agreements; the system requires that discussion take place at as soon as possible before any decisions are made, as these representatives need time to form an opinion that will be a part of the overall decisionmaking process. When the board processes matters of significance for employees, for instance a restructuring that can have consequences for employment, yet discussing the matter with union representatives in advance is once again “forgotten”, it may be appropriate for employee-chosen board members to ask that the matter be postponed so that more discussion can take place. An alternative to this proposal can be that the union representatives request discussions before the board meeting if it’s known that a certain important matter will appear on the meeting agenda. In a company in which several trade unions are operating, it can be appropriate to collectively discuss the plan in accordance with collective bargaining agreements.