The Role of the Board of Directors
By Indeed Editorial Team
Updated March 22, 2021 | Published November 5, 2020
Updated March 22, 2021
Published November 5, 2020
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
It takes a lot of people to ensure a large corporation is working smoothly. Rather than having one person make all the important decisions for a corporation, there is usually a team of people who discuss such matters. For many large companies, this team is called the board of directors. In this article, we explain the role of the board of directors and how they govern large corporations.
What is the role of the board of directors?
The role of the board of directors is to govern a corporation. It's their goal to make sure the corporation works within the confines of the law and the interests of stakeholders. This team of experienced executives works to make sure the company operates in the favor of stockholders, the public and its employees. Their purpose is to provide oversight and advisory to the company. By satisfying both functions, they can help the corporation run effectively and be more profitable.
When companies go public, they must have a board of directors. This way, they are sure to have a team that works in the best interest of stakeholders and holds the CEO accountable. You may also see nonprofits and private organizations with a board of directors to serve as their checks and balances.
Board of directors responsibilities
The board of directors is responsible for the following duties:
Hire leadership roles
The board of directors is responsible for the hiring process of those in management and executive roles. They make sure candidates can add value to the corporation. They may be responsible for the entire hiring process, including screening, interviewing, hiring and training new hires. They often search for someone within the industry or company when making these hiring decisions.
Create a mission statement
Defining the mission, objective and goals is a crucial component of having a board of directors. They are responsible for deciding what the direction of the corporation will be. When defining such initiatives, they need to consider the best interests of all stakeholders. They often partner with the chief executive officer (CEO) or general manager to make these important decisions.
Establish a policy system
The board of directors essentially acts as a government entity for a corporation. They develop the hierarchy of the business, along with any policies employees must follow. They also come up with a tier of consequences if there are any challenges with such policies. They may be responsible for creating employee handbooks or general parameters managers must work under. The key is to keep these policies broad enough that managers can use their own common sense to reach their goals.
Determine how they interact with the CEO
Along with creating a governance system for employees, the board of directors also makes policies for how they work with the CEO. For example, they develop set schedules for how often they need to meet with the CEO. They may also decide what is an appropriate form of correspondence, whether that be a phone call, email, video conference or in-person meetings.
Protect fiduciary assets
They make sure the assets of the corporation are in good order. Since they are working for the corporation's members and investors, they need to oversee things like profit, capital, facilities and employees. They make sure the corporation's finances and assets are looking good. They may need to implement policy changes if they notice any areas for improvement.
Related: How To Become CEO of a Company
Build a positive brand image
While many corporations have a public relations department, the board of directors also makes critical decisions that impact a brand's reputation. They work to diffuse tense situations and overcome any conflict that the corporation may be experiencing. It's their decision to launch campaigns that intend to improve how the public perceives their brand.
Acquire necessary resources
When departments within the corporation express that they need more resources, the board of directors will decide if it has the means to provide them. They may do this by looking at their budget along with the corporation's existing systems. They make sure they can adequately fund any new programs, products or services.
Vote on major decisions
Since a board of directors is comprised of multiple people, they often vote on a wide variety of topics. They typically work on a majority rules system, although some members may have more power than others. This is especially true if the group operates based on seniority.
Board of directors governance models
The way a board of directors operates depends on the individuals who make up the group. With a collection of different personalities, you may see either cohesion or defiance within the board of directors. Groups pick a government model based on their strengths and what the corporation needs. Here are some common governance models you may see within an organization:
Community representation: Nonprofits and governmental agencies may work to represent the community they are serving. You might see this model within a school board where a committee makes its decisions based on what's best for the families and students in their community.
Geographic representation: Although this model may not add the most value to the entire company, it does represent stakeholders within a specific geographic region or special interest group. This governance model is common in groups with many individuals from a similar region.
Manager focused: Rather than everyone on the board getting an equal say, the general manager serves as the leader. They tend to influence the group's decisions and have the most power. You often see this when a corporation has an enthusiastic and dominant CEO. While they may use the board of directors to get ideas and opinions, they ultimately make the decisions for the corporation.
Proactive board: Entrepreneurial businesses benefit the most from this form of governance. That's because these kinds of boards of directors tend to capitalize on any advantages or opportunities the company might have. They are always looking for new ways to innovate and stand out within the market. While they may have a manager who serves as the voice of the board, each member does still have a say. They tend to be more cohesive and come to group decisions.
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