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Message: What does a Board of Directors do?

What does a Board of Directors do?

posted on Aug 21, 2007 07:00AM

A company's board of directors provides the company with direction and advice. It is the responsibility of the board of directors to ensure that the company fulfills its mission statement. In doing so, the board of directors frequently sets 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 of directors 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 of directors the daily status of the company, and for communicating and implementing the vision and policy objectives of the board of directors.

A well functioning board of directors acts as a top level advisor to the company. The entrepreneurs who start a company usually provide the initial vision and mission statement, and the role of the board of directors is to give 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.

It is becoming the trend for the board of directors to be held fiscally responsible for the performance of the company. It is still rare for members of the board of directors to be sued because of something the company has or hasn't done, but it can happen, and damages have been awarded against the members of the board of directors. Board of directors members who have allowed a company to drift into bankruptcy have also been sued by the shareholders for negligence.

Members of the board of directors 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. A position on the board of directors is not usually a salaried position. 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 member of the board of directors 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. A board of directors that includes family members tends to be viewed suspiciously, and a strong board of directors can be a very valuable asset for the company, particularly when trying to raise capital.

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