Good Corporate Governance
The presence of boards (board of directors, board of trustees, etc.) has been around for centuries. They exist to strike the balance between top management’s goals and interests and those of the stakeholders. In doing so, they are tasked with a fiduciary responsibility and hold a great amount of power. When a key member of top management has overreached or begins putting his or her interests ahead of stakeholders, the board can respond. In recent decades greater attention has been drawn to boards in the wake of some of the large corporate scandals. However, we want to focus here on boards as they pertain to not-for-profits and small to medium size for-profit business rather than the larger publicly-traded corporations.
Who serves on the board?
The key defining factor of a board is that it is comprised of both “outside members” and “inside members”. Outside members are non-employees and non-owners of the business or organization. And inside members could be top management – in most cases, the Chief Executive Officer or Executive Director. Or inside members could hold a significant ownership interest. Having outside membership on the board provides a crucial check and balance on the power that top management can wield. Additionally, board membership is comprised of people with differing knowledge, skills, and expertise that they can bring to the table – finance, accounting, legal, banking, industry-specific, etc.
What are the board’s duties and responsibilities?
There are many duties the board is tasked with, and it is important to note that some of these can be dictated by state laws, as well as the business’ or organization’s by-laws or articles of incorporation. Some examples of common roles and responsibilities are as follows:
- Strategic objective-setting and policy-setting
- Hiring/firing of the CEO or Executive Director
- Setting compensation for the CEO or Executive Director and other top executives
- Engaging with outside accountants (when an audit or review is being performed)
- Engaging with legal counsel