What is the Role of the Board of Directors?
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By James Brumley
When most investors think of a particular company’s leadership, the CEO or President comes to mind. And, in terms of the day-to-day management a corporation, those are the people responsible for steering the company in the right – and profitable – direction. A company’s CEO does not necessarily have the final say in all matters, however.
Who Oversees the Overseers? The board of directors, though behind the scenes in most instances, is actually the ultimate authority within a corporation. The CEO and/or president of a company report to the board of directors, and the board will in turn offer suggestions and guidance (and perhaps apply some pressure) to the company’s key management.
Responsibility: Historically speaking, board members have taken a passive role in a company’s functioning. Their advice was considered, their presence fulfilled a legal obligation of publicly-traded companies, and at the very least a board of directors could keep a CEO focused on success. But, board members rarely took on a legal responsibility.
In the shadow of ever-growing corporate scandals and neglect that eventually hurt shareholders though, the expectation of board members has been raised. Rather than merely offering guidance to a corporation’s key management, the board is now expected to fulfill a legal obligation to diligently oversee a company’s operation. Though lawsuits against a board are still uncommon, they are not unheard of.
Selection of Board Members: Since a board member is primarily a shareholder activist, they are chosen by the shareholders themselves through a voting process. Since each share of stock also acts as a vote, larger shareholders have greater say about who is voted onto the board.
Compensation: Though board directors are generally not paid a salary, some companies do pay their board members a nominal salary. The bulk of the compensation tends to be in the form of stock, stock options, and perks.
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