The board of directors is one of the three elements of corporate governance and includes the top management and shareholders of a corporation. The board of directors' responsibilities include providing an overall strategy and vision for the organization, decision-making from top-level personnel, providing oversight of the corporation’s activities and exercising due care, making funding decisions, overseeing corporate accounting, and protecting shareholder interests (Wheelen, p.45).
Members of the board of directors may provide overall strategic guidance, but they have a limited role in the day-to-day operations of the business. The level of activity of a board can be broken down into three levels. On the first level, the board monitors the activity of the company and provides oversight. In addition to monitoring, the board may also choose to be involved in major proposals or decisions to provide guidance and advice. The most engaged boards will also provide solutions and help determine the course of the business (Wheelen, p.46). This level of engagement is called the board of directors’ continuum (Wheelen, p. 46).
The composition of the board of directors can have a mix of inside and outside directors. Agency theory is the idea that board members who are also employees of the company may have a conflict of interest and will not provide objective judgment (Wheelen, p. 49). By contrast, some companies prefer to have more inside directors because they feel these individuals are highly invested in the success of the company and have the intimate knowledge of the company needed to make the best decisions. Board members can also include affiliated directors, retired executive directors and family directors (Wheelen, p. 51). In addition, employees can serve on the board if the company allows codetermination. In many cases, board members are invited to the board by the CEO and elected to the position by the shareholders. Overall, the board provides a valuable function in the governance of the company and the protection of shareholder interests.
Behan, B. (2011). Great companies deserve great boards: A CEO's guide to the boardroom. New York: Palgrave Macmillan.
Wheelen, T. L., & Hunger, J. D. (2012). Strategic management and business policy: toward global sustainability (13th ed.). Upper Saddle River, N.J.: Pearson Prentice Hall.