The article concerns the following question – What is a Board of directors? The Board of Directors is a group of elected or chosen individuals by the shareholders of a company. The CEO reports to the board and ultimately, the board governs the company making decisions for the long-term health of the company. In addition, a non-profit entity will have a board of directors, but the individuals are not chosen by shareholders, as there are no shareholders. A non-profit may have members and those members may have rights to elect the directors.
Because the board of directors is responsible for the direction of the company as well as its financial well-being, it is said that the board has a fiduciary responsibility to the shareholders. Typically, the board favors the wishes of the shareholders, as they are the reasons the individuals are where they are. The mix of shareholders and board members can be quite different depending on incorporation laws and statutes.
For example, one person can own all the shares of a company, but may be required to have three board members. Generally speaking, in this scenario, the board of directors will have little say over the corporation because the sole shareholder will make the decisions. He/she is most likely the CEO as well.
Interestingly, once a company goes public and there are others with large portions of shares, it is quite possible for the CEO to be ousted by the board even though it was he/her company to begin with.
When choosing board members, it is always advisable to choose those persons who can contribute the most to the success of the organization. Usually directors are chosen because of their experience, their wealth of knowledge, their influential contacts, and their ability to make things happen. Because shareholders entrust the corporation to the board, it is really important that these people bring serious assets to the table. Of course, not physical assets but intangibles that help the company to grow and prosper.
Another area that serves as a guide when choosing the board of directors is governmental regulations. Different states, provinces and countries have varying rules about the choice of board members. For example, there is usually a minimum number requisite. In addition, there may be restrictions on citizenship. So there may need to be three board members, one of which is a citizen of the country where it was incorporated.
The board is assigned the task of selecting officers for the company. Some may choose a CEO and CFO, then permit the CEO to choose others as needed. Board members should be able to undertake functions themselves. That is to say, if a particular board member has experience in raising capital, he/she will be responsible for finding the funds for a major project. In addition, if a company audit is expected, accountants on the board will jump in to help.
A final word on payment. For very large corporations, fees or retainers for the boards of directors are probably going to be quite substantial. To enlist the types of people that the corporation needs will certainly be costly. But then, they have a huge responsibility and their assets are what attracted the shareholders to them in the first place. On the other side of the fence, there are many people who sit on boards and are paid very little more than expenses.