In a business setting, a board of directors is a group of individuals that are elected to determine management policies and make major decisions for the company. All publicly-traded companies have a board of directors, as in general they represent the stockholders in that company. The goal is for a board of directors to fairly represent both stockholders’ and management interests, which can be a difficult balance to achieve. The elected or appointed members of the board should include both insiders to the company and independent individuals in the industry. The board of directors may include the chief executive officer (CEO) of the company, as well as the general manager. A president or chair of the board holds the highest office among the directors. Other positions include vice-chair, secretary, and treasurer.
Directors are given the power to control an organization or company. But for many companies, they are actually acting on behalf of shareholders who have invested in the company. Shareholders want to know that their money is being put to good use. As a result, the law imposes rigid rules on directors to ensure that they follow their duties. Directors may have separate duties according to their specific title or position-for instance, a secretary has different duties than vice-chair-but the powers apply to the whole board and not individuals. The following are just some of the major duties that members of a Board of Directors may have.
Ensuring Proper Purpose
Members of the board must use their power for the benefit of the company or organization. Directors who use their power to make good decisions for the company are not always evident, especially in large corporations, where the opportunity for personal financial gain may hinder a director from acting in good faith.
Discretion in Decision-Making
Board members are not allowed to limit their discretion when it comes to exercising their powers. They cannot choose to vote a certain way at proceeding board meetings without company permission. This is to ensure that there is no personal gain to directors voting a particular way. The board, however, can agree to push the company towards particular course which may require future approval from the board. The company may remain on its course while board members have the right to use their discretion while voting in the future.
Preventing Conflict of Interests
Directors are not allowed to put themselves intentionally in positions where their interests go against the interests and duties they have towards the company. There are three main types of conflict of interest according to the law. These including making transactions with the company, using company property or information, and competing with the company. Directors who are found to violate this duty may be subject to penalization.
A board of directors is a group of appointed or elected officials that act on behalf of shareholders in the company. They should have both management and shareholder interests in mind when they vote on decisions.