A board of directors is a group that governs a business entity regardless of whether it’s traded on the public market (public company) or privately held, closed to family members only (family company), or exempt from taxes on income (a tax-exempt nonprofit corporation). The powers, duties and responsibility of the board is mostly determined by regulations of the government and by the constitution and by-laws of the company.
Most presidents and outside directors agree that the function of a board is advisory rather than of an influencing nature. Management is in charge of the business, and the board is a source of advice and counsel to the management. Outside directors are selected for their expertise in certain areas of business and offer a big picture perspective which may not be accessible to the management. Many smart presidents rely on the sources of advice that are represented on their boards — both inside and outside of formal meetings. They are careful to select new directors based on their desired skills or areas of expertise.
The most important function of a Board is to inquire into management, particularly when there is a major issue with the business or the economy. My research revealed that, even although many presidents claim to want directors to ask discerning questions, they don’t often allow the questions to be raised at regular board meetings. This is especially true if they believe that they are being criticized by subordinates in the board that attend the meeting.
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