How Does the Board of the Company Work?

In a publicly traded company, the board is the entity which decides on what the corporation does. The board members are chosen by the shareholders (the owners) to represent them and to look out for their interests. The board hires executives who manage the day to day operations in accordance with the instructions of the board.

A key purpose of the board is to make sure that a business doesn’t take risks with its shareholders’ or investors assets. It sets guidelines for dividends and payouts, appoints or denies the hiring and dismissal of managers at the highest level and corporate rules, and organizes the annual shareholders’ conference.

The board is usually comprised of both inside directors as well as outside directors. The Chairman of the Board preside over meetings, sets agendas, and delegates tasks to the members. Some boards have permanent committees, like the compensation and audit committees. These board of the company work committees usually have a specific purpose and are required by legislation or listings on stock exchanges.

Boards must be able to balance the need to review the information they have regularly with their responsibility to focus on the bigger picture and not on day-to-day management. It is vital for a board to recognize what responsibilities it must and wants to carry out on its own, and which ones it can delegate. It is common for boards to devise the schedule of reserved powers that clearly outlines which tasks are the sole responsibility of the board, and which it can legitimately devolve to the senior management.

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