Board of directors

Written by Fmi.Online Friday January 6, 2023
A board of directors represents an elected or an appointed body of members who are responsible for overseeing a firm’s activities to the benefit of its stockholders.

Explanation:

 The board is mandatory for all organizations – private, nonprofit, or governmental because it is held accountable for the firm’s policies and actions. For instance, if an organization acts in an irresponsible manner that harms consumers and the public benefit, the board members are held responsible for the consequences of the organizations’ actions. Generally, a board is acting within the framework of corporate governance, which includes the explicit and implicit contracts between the board and the company’s stakeholders concerning their responsibilities and rights and the procedures for monitoring and controlling the company’s operations to ensure that there are no conflicting interests between the stakeholders (management, employees, customers, government, community).

In a nutshell:

  • The board of directors is elected to represent shareholders’ interests.
  • Internal board members are not usually monetarily compensated for their work, but outside board members are paid.
  • The board makes decisions concerning the hiring and firing of personnel, dividend policies and payouts, and executive compensation.
  • A board member is likely to be removed if they break foundational rules, for example, engaging in a transaction that is a conflict of interest or striking a deal with a third party to influence a board vote.
  • A board of directors is elected by shareholders but nominated by a nominations committee.
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