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What does a Board of Directors do?
A company's board of directors provides the company with direction and advice. It is their responsibility to ensure that the company fulfills its mission statement and in doing so, it will frequently set the company's overall policy objectives. For these reasons, a good board of directors includes knowledgeable and experienced business people.
Typically, only one member of the board is involved with the day-to-day activities of the company. This person is the Chief Executive Officer (CEO), and he or she acts as a liaison between the board of directors and the rest of the company. The CEO is responsible for communicating to the board the daily status of the company, and for communicating and implementing the vision and policy objectives.
A well functioning board acts as a top level advisor to the company. The entrepreneurs who start a company usually provide the initial vision and mission statement, and board subsequently gives advice on how to best implement this vision. A good board of directors will also let the company know when it is drifting away from its goals and objectives.
More and more, the board will be held fiscally responsible for the performance of the company. It is still rare for board members to be sued because of something the company has or hasn't done, but it can happen, and damages have been awarded against some members, including those who have allowed a company to drift into bankruptcy by way of their own negligence.
Members of the board are usually compensated for their position. Compensation is usually in terms of perks and share certificates or options. In this way, members' interests are aligned with the shareholders' interests. Board positions usually are not salaried. Charitable organizations frequently also use a board of directors, and in such cases, the only compensation is usually some perks and the recognition and prestige that comes with being an important part of a significant charitable organization.
To be eligible as a board member of a publicly traded company, you must be over 18 and have a clean criminal record. There are no restrictions prohibiting family members from being on the board of directors, but this is generally not advised. Those that includes family members tend to be viewed suspiciously, and a strong board can be a very valuable asset for the company, particularly when trying to raise capital.
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![Board of directors members are often compensated with share certificates.]()
By: Ken MellottBoard of directors members are often compensated with share certificates. -
![A strong board of directors can be a valuable asset to a company.]()
By: KzenonA strong board of directors can be a valuable asset to a company. -
![The board of directors may be held fiscally responsible for the performance of the company.]()
By: Photographee.euThe board of directors may be held fiscally responsible for the performance of the company.
Discussion Comments
@anon56067-- In terms of the Chief Executive Officer, the entire Board of Directors is generally involved in and aware of the CEO's salary and benefits. Since one of the Board of Directors responsibilities is to evaluate the CEO, it makes sense for compensation to be relative to his or her performance.
@turquoise-- That should certainly not be happening and there are mechanisms within each organization or company to prevent such issues. For example, rules relating to "conflict of interests" are found in the board of directors bylaws of each organization. So a director's interests outside of the organization cannot conflict with the organization's interests. Otherwise, such an individual will not be allowed to serve on the Board.
I read recently in the news that some individuals often serve on the board of directors of multiple companies and use their powers to influence decision making that serves their personal interests and career. How can this be so? Shouldn't there be oversight of the board of directors to prevent this from happening?
Who are the key players in executive compensation.
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