How Does the Board of the Company Work?

In a publicly traded company, the board of the company is the group of individuals who decides what the company does and why. The board members are elected by the shareholders (the owners) to represent them and watch out for their interests. The board appoints executives who manage day-today operations according board instructions.

A major purpose of the board is to ensure that a company does not risk its investors or shareholders’ assets. It decides on guidelines for dividends, approves or denies the hiring or firing of high-level managers, changes corporate regulations, and also holds an annual shareholders’ meeting.

The board is usually comprised of both inside directors as well as directors from outside. The chairman of the board conducts meetings, decides on agendas and delegates tasks among the board members. Certain boards have permanent committees, such as the audit and compensation committees. These committees typically have a specific purpose and are mandated by legislation or listings on stock exchanges.

Boards must find a balance between the need to review the information in depth regularly and their obligation to not only on day-today operations but also on the bigger picture. It is also essential that a board recognize which of its duties it is required to and wants to perform itself as well as those it can delegate to senior management. It is common for boards to come up with the schedule of reserved powers that clearly defines which activities are solely the responsibility of the board and which it can legitimately devolve to the senior management.

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