Board of Directors (B of D)

Key takeaways

• The board of directors is the governing body that sets strategic direction, oversees senior management, and protects stakeholders’ interests.
• In public companies, shareholders elect the board; boards act as fiduciaries and focus on major decisions, not day-to-day operations.
• Effective boards combine diverse skills, independence, clear governance processes, and transparency.

What is a board of directors?

A board of directors is a group elected or appointed to govern an organization. Its primary responsibilities are to set broad strategy, appoint and monitor senior executives, manage major risks, and ensure the organization acts in the interests of shareholders and other stakeholders. Public companies are required to have a board; many private companies and nonprofits also use boards (often called boards of trustees).

Core responsibilities

Boards typically handle:
* Setting and approving long-term strategy and major corporate policies.
Hiring, evaluating, compensating, and, if necessary, firing the CEO and other senior executives.
Overseeing financial reporting, audits, and internal controls.
Approving major transactions (mergers, acquisitions, divestitures) and capital allocation (dividends, share issuance).
Establishing risk-management policies and monitoring key risks.
Ensuring legal and regulatory compliance and promoting ethical conduct.
Engaging with stakeholders (shareholders, employees, customers, regulators, community).

Note: U.S. exchanges (NYSE, Nasdaq) require listed companies to have a majority of independent directors and independent directors on key committees (for example, the audit committee).

How a board operates

• Governing documents: The company’s articles of incorporation and bylaws define board size, election procedures, meeting frequency, and committee structure.
• Committees: Boards commonly delegate work to committees (audit, compensation, nominating/governance) composed largely of independent directors.
• Fiduciary duty: Directors must act in the best interests of the company and its shareholders, balancing short- and long-term interests.
• Meetings and reporting: Boards meet regularly, review management reports, approve major actions, and maintain records (minutes, resolutions).

How boards are chosen and removed

• Public companies: Directors are typically nominated by a nominating committee and elected by shareholders at annual meetings. Shareholders can also nominate candidates.
• Private companies and nonprofits: Selection follows the bylaws or shareholder agreements and may be by consensus among owners or appointing bodies.
• Staggered terms: Boards may stagger terms to prevent a full turnover in a single year and reduce the risk of hostile takeovers.
• Removal: Directors can be removed for cause (e.g., breaches of fiduciary duty) or under procedures specified in governing documents. Many boards also have fitness-to-serve rules covering conflicts of interest or misconduct.

Types of boards

• Executive board: Actively manages operations when there is no single CEO or when the board takes an executive role.
• Governing board: Provides oversight and guidance to help the organization achieve its objectives.
• Advisory board: Offers nonbinding strategic advice and expertise; members usually have no formal governance authority.
• Fundraising board (nonprofits): Focuses on donor development, fundraising events, and leveraging community/business connections.

Types of board members and common roles

• Inside directors: Company employees or major shareholders who are involved in operations (e.g., CEO).
• Outside (independent) directors: Not part of management and less likely to have conflicts of interest; they bring external perspectives and oversight.
  Common board roles:
• Chairperson (or president): Leads the board, sets agendas, manages meetings, and often represents the board externally.
• Vice chair: Supports the chair and acts in their absence.
• Secretary: Maintains minutes and corporate records.
• Treasurer: Oversees financial oversight, budgets, and accounting policy (in some boards).

What makes a board successful?

Effective boards share these qualities:
* Diverse, relevant expertise aligned with the company’s strategy.
Independence and a culture that enables constructive challenge of management.
Clear roles, strong committee structure, and disciplined processes (agendas, evaluations, succession planning).
Transparency and accountability in decision-making and disclosure.
Commitment to acting in the organization’s best interests and managing conflicts of interest.

Frequently asked questions

Q: Does a CEO outrank the board?
A: No. The CEO manages daily operations and reports to the board. The board hires, evaluates, and can remove the CEO.

Q: Are board directors paid?
A: Inside directors (employees) often do not receive separate board pay. Outside directors are usually compensated for their board service.

Q: How large is a typical board?
A: Many boards have five to ten members; some set an odd number to avoid tie votes. Size depends on company needs and governance practices.

Bottom line

The board of directors provides strategic oversight, protects stakeholder interests, and ensures sound governance. Its effectiveness depends on composition, independence, clear processes, and the ability to hold management accountable while supporting long-term value creation.