Glossary term
Board Charter
Subject: Governance, Board and Committees
Also known as: Terms of Reference
A board charter is a written document setting out the board's role, powers, makeup and ways of working, including what it keeps for itself and what it hands to committees and management. Terms of reference is the same idea.
Explanation
The charter is the board's own rulebook. It usually says how many directors there are and of what type, how often the board meets, what counts as a quorum, and which decisions only the full board may take, such as strategy, large deals or the appointment of the chief executive. It also lists the committees, sets expectations on conflicts of interest and induction, and describes how the board reviews itself. Committees have their own versions, normally called terms of reference. A charter differs from a company's articles or constitution, which are legal documents and harder to change. Many governance codes expect the charter to be published. Directors disputing who could approve a deal can settle it by pointing to the clause instead of arguing over custom.
Example
A mid-sized company's chief executive agrees a large acquisition with the seller before telling the board. The board charter reserves any deal above 5% of net assets for the full board. The chair points to the clause, the agreement is put on hold, and the board reviews the deal properly before voting.
Not to be confused with
- Articles of association
- The articles are the company's legal constitution. The charter is the board's own working document and is easier to update.