Board Membership 101: The Role of a Board of Directors

Present day corporate directors are faced with increasing responsibilities, expectations, and risks. Over the last twenty years, government standards for board oversight have grown more stringent than ever as the role of a board of directors evolves.

Role of the Board

But why exactly do boards of directors exist, and what is the role of a board of directors? Ultimately, boards exist to provide strategic oversight for a company and to protect shareholders’ financial interests.

In order to accomplish those goals, individuals who wish to serve on a board must be willing to take on the responsibilities expected of a director. Below, you’ll find eight factors that outline the role of a board of directors.

  1. Provide strategic guidance.

Literally, board members are expected to provide the vision, mission, and goals for an organization. Metaphorically, they’re also responsible for the “big picture” vision for the company: where is it currently headed? Where does the company want to go from here?

  1. Select and compensate senior management.

The board of directors is endowed with the great responsibility of finding, hiring, and compensating a CEO. Selecting a Chief Executive is no easy task, as the board will need to find a qualified and capable individual who shares the board’s vision for the company. This responsibility also includes deciding when or if to remove a CEO who has proved ineffective or incapable.

  1. Monitor and evaluate performance.

Without becoming micro-managers, the board is expected to oversee the performance of the CEO and other internal executives while also providing them with support and guidance.

  1. Establish organizational policies.

As a governing body for the company, the board must review current policies and create new ones for constantly evolving legal compliance or for the current needs of the company. An example of this might be tweaking hiring policies or adjusting the size of the board.

  1. Monitor and safeguard financial resources. 

Board members have many responsibilities when it comes to financial oversight. Simply stated, they are expected to ensure that the company maintains adequate resources and also develops new ones. Additionally, they are charged with the duty of reviewing and approving annual budgets, and the audit committee must ensure that a yearly audit is completed in a thorough and timely manner.

  1. Self-assess and self-regulate.

Although they are servants of the corporation, boards are self-governing bodies. For that reason, it’s important that boards self-assess their performance and effectiveness both individually and as a group. They must also select leadership and form committees in accordance with governmental law and the policies/structure of the company they’re serving.

  1. Manage organizational risks.

Risk is an innate part of the corporate world. Boards are expected to use their experience to both acknowledge and confront potential risks.

  1. Uphold fiduciary duties.

The fiduciary duties of a board of directors demand that they serve the board faithfully without any conflicts of interest. The board members should always make the decision that is in the best interest of the shareholders, even if it is not in their personal best interest. Disregarding these duties can bring serious legal ramifications to individuals or groups of people serving a board.

In the coming weeks, we’ll delve deeper into each of these topics. We hope you’ll check back soon and that you’ll explore our website to learn more about how Directorpoint can take your board meetings to the next level in productivity and efficiency!

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