How Does the Board of the Company Work?
In a publicly traded corporation, the board of the company is the person who decide what the company does and why. The shareholders (owners) elect its members to represent and protect their interests. The board employs executives who manage day-to-day operations in accordance with the instructions of the board.
The primary function of the board is to make sure that a company doesn’t risk its shareholders’ or investors’ assets. It decides on guidelines for dividends, approves or denies hiring or firing top-level managers, alters corporate regulations, and conducts an annual shareholders’ meeting.
The board is usually comprised of both inside directors as well as directors from outside. The chairman of the board conducts meetings, decides on agendas and delegates tasks to the members. Some boards have permanent committees, like the compensation and audit committees. These committees usually have a particular scope and are required by law or by listing on stock exchanges.
Boards must strike a balance between the need to examine data in depth on a regular basis and their obligation to not only on the day-to-day activities but also on the bigger picture. It is essential for a board to understand the obligations it has to assume on its own and which ones it can delegate. Boards often create a list of reserved powers to clearly define what activities are the sole responsibility of the board and those that can be delegated to the senior management.