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How Does the Board of the Company Work?

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In a publicly traded corporation The board of the company is the body of people who decides what the corporation does and the reasons for it. The shareholders (owners) elect its members to represent and safeguard their interests. The board hires executives who manage day-today operations according to the guidelines of the board.

The main purpose of the board is to make sure that a business doesn’t take risks with its shareholders’ or investors’ assets. It formulates policies for dividends and payouts, approves or denies the hiring or firing of high level managers, changes corporate rules, and conducts the annual shareholders’ meeting.

The board is usually composed of both inside directors and outside directors. The chairman of the board oversees meetings, sets agendas, and delegates tasks among the board members. Certain boards have permanent committees such as the audit and compensation committees. These committees usually have a particular scope and are required by law or by listing on stock exchanges.

Boards must find a way to balance the necessity to review the information they have on a regular basis and their responsibility to concentrate on the bigger overall picture and not focusing on day-to-day management. It is also important that a board recognize which of its duties it is required to and wants to carry out itself as well as those it should delegate over to senior management. It is common for boards to come up with a schedule of reserved powers that clearly defines what activities are solely the responsibility of the board and which it is able to delegate to the senior management.

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