Board of Directors Explained

What is a Board of Directors?

A board of directors is a body of appointed or elected members who jointly oversee and regulate the activities of a company or organization. The term ‘board of directors’ is somewhat broad; a number of organizations, such as municipal departments or government agencies will utilize a board of directors, but will refer to the board by a different name--such as a board of governors, board of regents, board of trustees, an executive board or a board of managers.

A board of director’s activities is predominantly determined by the powers, responsibilities and duties delegated to it by an authority outside of itself—such matters are typically detailed in the underlying organization’s bylaws. The bylaws, in addition to establishing the board of director’s powers, will also specify the number of members to operate on the board, how these individuals will be chosen (appointed or elected) and the number of times they are to meet in a fiscal year.

Board of Directors in a Public vs. Private Corporation:

For an organization with voting members (for example, a public corporation or professional) the board of directors will act on behalf of and is subordinate to, the organization’s full assembly, which will typically choose the members of the board. In a public corporation (one that issues stock to public shareholders) the board of directors is elected by the stockholders; the board of directors is the highest authority in regards to the management of a public corporation. In a non-stock or private corporation, voting membership is typically not allowed. That being said, non-stock organizations, such as a university, will utilize a board to act as the supreme governing body of the institution. In these scenarios, the individuals on the board of directors may be chosen by the board itself.

What are the Typical Duties of a Board of Directors?

Typical duties of a board of directors will include the following:

• Govern the underlying organization through the establishment of broad objectives and policies

• Select, appoint, support and review the performance of the CEO

• Ensure the availability of adequate financial resources

• Set individual salaries and compensation for members on the board

• Provide accounting resources to the stakeholders for the organization’s performance

In addition to these basic responsibilities, the board of directors will assume a number of legal responsibilities—these duties will fluctuate based on the nature of the organization and where the organization is located. For a public corporation, these responsibilities, when compared to a government agency, municipality or educational instituation, are typically more complex and rigorous in nature