It is impossible to imagine in the modern business world to establish the management process without the participation of the Board of Directors. But not all business people are aware of how important the role of the board of directors is in the life of the company. We suggest learning a little more about what a board of directors is, what their role is in the organization of the whole company and what the board of directors should look like.
What is the board of directors?
The board of directors is an integral part of the corporate governance system for public companies. Under current regulations, every public company is required to establish a board of directors to ensure a more open, transparent and accountable management of its assets. However, recent trends in the corporate governance world suggest that many private companies are also beginning to adopt a corporate governance model with a board of directors.
The purpose of establishing a board of directors to manage a company is to create a protective mechanism for the rights and interests of ordinary shareholders, and to implement the following principles into the operation of the company:
- Openness – so that the company can have no fear about its reputation in the marketplace;
- Transparency – all processes and use of assets must be properly reflected in the corporate documentation;
- Accountability – the board of directors should be accountable to the employees and shareholders of the company in order to avoid abuse of its position.
Thanks to the board of directors it is possible to build a democratic model of company management, which has the aim to satisfy the interests of all shareholders of the company regardless of their status.
The main functions of the Board of Directors
Like any other structural unit within the company, the board of directors has its own scope of activities and is obliged to perform specific functions. The list of authorities and functions for board members is usually spelled out in the company’s charter, as well as their liability under the law for breaching their obligations. Most often, the board of directors is entrusted with the following functions:
- Representing and protecting the interests of the company;
- Control over assets which the company is entitled to dispose of;
- Participation in the strategic planning of the company’s short- and long-term development;
- Fixing and paying remuneration to the company’s shareholders;
- Taking care of the welfare of the company and equipping it with the basic resources to carry out its daily tasks and further development.
A more precise formulation of the functions of the board of directors can be found in the articles of association of each particular company. Not surprisingly, they may have formal differences, but the overall gist is unaffected.
Who is on the board of directors?
Each company has the right to specify in its charter not only the functions of the board of directors, but also the number of board members and the role of each of them. As a rule, the board of directors necessarily includes the executive general director, who at the same time represents the interests of the entire board. Sometimes the board also has a supervisory committee and an executive committee.
The role of the board of directors in the modern business world is often disputed, but the advantages of this model of corporate governance require no further argument.