The Role of a Board of Directors
Many startups are unfamiliar with corporate formalities, and often ask what the role of the board is, or the role of directors is. Business and everyday affairs of a corporation are wholly controlled by its board of directors. This article addresses some of the foundational roles of the board.
The board upholds its responsibilities through:
- Appointing officers (such as CEOs) to execute company tactics, suggesting corporate milestones and programs, and administering habitual operations of the corporation;
- Overseeing the appointed officers; and
- Finalizing crucial decisions for the company (such as merging with or acquiring another company.)
Stockholders Elect Directors
Directors are elected by stockholders to manage the corporations on their behalf. To this end, stockholders usually pick directors with great knowledge in a specific area or a wealth of connections to serve as administrative and advisory positions within that dominion.
Board of directors usually act as authority figures in a corporation; their common tasks include approving corporate organizations and functions presented by appointed officers and establishing a policy-based governance system to guide the actions of the board and the officers they appoint. The policies are usually tailored to the specific needs and situations of each corporation; they also tend to be broad to leave enough breathing room and creative spaces for officers and directors to act flexibly in the best interest of the corporation.
Functions of Committees
The board can and often creates committees of directors and assign specific powers to those committees. Committees can be an efficient way to delve deeper into issues or to conduct further research towards matters that are essential for big picture goals. The board can then rely on reports and findings from the committees when making major decisions for the corporation. In doing so, the board of directors would be protected from personal and collective liability as long as they relied upon findings from the committee in good faith when finalizing and presenting their decisions for the company.
Although Committees can be very influential with the powers given by the board, there are exceptions and limitations to the Committee’s powers. For instance, Committees do not have the power to recommend, adopt, or approve to stockholders matters or actions that specifically must be approved by the stockholder under Delaware law; Committees are also prohibited from repealing, amending, or adopting any corporation by-laws. At most, the Committees might be able to approve or recommend to stockholders the elections or removal of directors, but only if the circumstances and dynamics of the corporation allow an opportunity for such exercise of power.