Understanding what a board of directors does helps explain how sound governance can improve a company's competitiveness .
What is a board of directors?
The board is a governing body whose members guide the organization's direction. The experience and judgment of its directors can directly influence how well the company competes.
For independent perspective, a board may include directors who do not participate in day-to-day operations.
It may also rely on committees to review information and recommend action on specialized topics, allowing the full board to make better-informed decisions.
Main characteristics
The board of directors is a central corporate governance body. Its authority, delegated by shareholders and defined by law and company bylaws, allows it to set direction and oversee executives across the organization.
How does it work?
Board size and composition depend on applicable law and the organization's bylaws. Directors may or may not be shareholders.
The board makes important organizational decisions, while the chair, chief executive, and other officers exercise the powers assigned to them under the governance structure.
What does the board of directors do?
- Oversee the execution of strategic objectives and corporate plans.
- Set and monitor budgets and financial forecasts.
- Seek to create long-term value for shareholders.
- Decide on major investments or asset disposals within its authority.
- Review annual accounts, budgets, and company results.
- Consider corporate transactions such as purchases, sales, mergers, acquisitions, and joint ventures.
- Call shareholder meetings when extraordinary matters require their decision.
- Oversee senior leadership appointments and, where authorized, changes to executive employment terms.
- Approve significant asset transactions and borrowing above established thresholds when required.
Boards often include directors who are also significant shareholders.
A 2018 recommendation cited by Mexico's Consejo Coordinador Empresarial discussed board representation in relation to share ownership. Any specific appointment right depends on the company's bylaws and applicable law, rather than a universal ten-percent rule.
Other directors may be executives or people connected to management. Good corporate governance should consider all shareholders' interests fairly.
The board and EthicsGlobal
At EthicsGlobal, we see the board of directors as essential to regulatory compliance and sound governance.
We also see opportunities for boards to help organizations grow. To learn how stronger governance practices can create value, contact EthicsGlobal.