Board of Directors Structure

free essayThe Board and the directors are the bases on which the corporate governance is built. The board has the responsibilities that range from the protecting the interests of the shareholders to ensuring that the needs of other stakeholders are protected properly. In the modern world, and especially after the ethical crises that bedeviled the corporate world leading to the collapse of several large corporations especially in the US, the need for board oversight in corporate management arose (FindLaw, n.d.). Consequently, it is apparent that the Board, while delegating the authority to the Chief Executive Officer and the managers, ought to ensure an effective control of the organization (FindLaw, n.d.). In most organizations across many jurisdictions, the Board is appointed by the shareholders during their annual general meetings.

The leader of the Board is the Chairperson (Chairman of the Board). The Chairman is also the leader of the company technically (FindLaw, n.d.). He has the role of helping run the company in an effective manner so that the company can meet its principal goals and maximize its revenue stream (FindLaw, n.d.). Because he/she is more often the Chief Executive Officer (CEO), he/she has to communicate with the CEO, and other people in the superior administration positions including the Chief Financial Officer (CFO) among others.

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Chairman

The Chairman, in his role, as the chief of the organization, is also in charge of assuring that the company follows a viable business strategy. Sometimes, the Chairman is also the public face of the company, and thus has to represent both the company and the Board in an effective way in public and before the other stakeholders (shareholders, customers or clients) (Investopedia Staff, 2015). The chairpersons also have a large role to play when it concerns the ethical position of the organization (Investopedia Staff, 2015). Further, the Chairperson has to ensure that the company acts in an ethical manner to the shareholders, customers and clients, other stakeholders and public in his role as the guardian of the company. The rest of the directors also assist the Chairperson t in running the organization (Investopedia Staff, 2015). There are several categorizations of Directors depending on the level of involvement in the company. They are classified as an inside, outside and busy directors.

Inside Directors

Inside directors are the ones who have a direct connection to the organization and are usually involved in the day to day running of the company. They are normally the major shareholders in the company, some of the officers and the managers of the organization (Investopedia Staff, 2015). The inside stakeholders include the Chief Executive Officer, CFO or vice presidents who perform executive roles of in the organization or in some cases maybe the employees and major financiers of the company such as banks or mutual funds (Investopedia Staff, 2015). In some cases, they might even include other stakeholders such as the representatives of the community around which the company has a basis and representatives of industrial organizations. The purpose of the inside shareholder is to ensure that the Board protects the interests of the stakeholders in the company and ultimately to ensure that the path the Board crafts for the company takes into consideration various stakeholder interests.  In a case where an employee also serves in the Board is sometimes referred to an executive director if he/she is in the senior management of the organization (Investopedia Staff, 2015). Other than the CEO, inside shareholders who serve as the directors usually have a defined role in a particular area of the organization such as finance, human resource, and labor relations.

Outside Directors

Among the directors, there are those that do not have a direct engagement with the company, and they are not the representatives of any of the stakeholders from the shareholders to the employees, and financiers/lenders. They usually have no affiliation with the company other than serving as Directors, and thus, they do not draw any benefit from the organization (Investopedia Staff, 2015). Their main function is to provide the company with a perspective and know-how on issues that the inside directors and employees may not be experienced in (Investopedia Staff, 2015). In this way, the outside directors that present objectivity on many issues, are more adept at solving disputes between other directors due to their “outsider” status and are unlikely to tolerate the instances of unethical behavior in the organization (Investopedia Staff, 2015). However, their relative lack of knowledge about how to run the company due to their “outsider” status presents a challenge as they might fail to know most of the issues at hand.

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Busy Directors

In some cases, some people will be approached by numerous organizations to sit on their Boards because of their experience or expertise in the particular area, and he/she accepts all the invitations (Investopedia Staff, 2015). These individuals are known as busy directors. While they can bring the experience and perspectives gained from various companies, they serve as directors who are not likely to have much influence on the Board, because they have to balance so many responsibilities over the companies and corporations.

Structuring Board of Directors: The Kind of Board I Want

There are several kinds of boards that one can structure a company to have depending on an organization and its stated aims. These include the working board constituted for credibility factors and a board whose members constituted the relevant experience (The Balance, 2016). Companies can also include the boards whose members are likely to help with fundraising. Lastly, a company can also choose to have a board whose chief aim is to safeguard the mission of the organization.

Working Board

The working board is a board in which most or all members do a lot of work that is employee-related. In essence, most of the individuals serving as board members are working for the organization in various capacities (The Balance, 2016). In other words, working board depends on what it wants to accomplish. These types of board are more apparent in the non-profit sector, where the organizations are sometimes small and meant for a specific purpose, and also have limited resources. In this kind of situation, the organization will choose to have a working board rather than a policy board. While this board ensures that the employees are directly involved in the running of the organization, it can also lead to a limited external expertise of the Board. Consequently,  this can lead to less successful situation.

Board for Credibility

Sometimes, an organization may choose to constitute a board from people who assist the organization in gaining or regaining the lost reputation. For a company that has such a set of values kept at all costs, a board for credibility will be the proper one to constitute (The Balance, 2016). In some cases, a hitherto scandal-free organization gets involved in a corruption scandal. As a result, the public will need to see the changes in the leadership structure of the company (The Balance, 2016). One of the most valuable methods of doing this is through the reconstitution of the Board to have the individuals who are not only the experts in their set field but are also strong upholders of ethics.

Boards with Relevant Experience

In some organizations, the company will choose to have such Board members who have served in the same capacity in other similar companies. For instance, Reebok could hire a Board member who previously worked for Nike. It can also be the experts who have a proper experience in the products the company deal with. For instance, a former CEO of an apparel manufacturing company could be invited to sit on the Board of a company of the same caliber. The constitution of the board in such a manner ensures that its members can actively question the management in the issues of the company since they are familiar with the processes (Carver, 2011). Moreover, it also assures that the board has an active interest in the running of the company. This type of board, however, might also prove an impediment to the running of the organization due to constant questioning from the Board.

Fundraising Boards

In non-profits, the organization needs to have a Board that will not only be involved in the governance of the organization but also the logistics of raising revenue streams. In constitution of these types of boards the organization is searching for such people who are independently wealthy, not introverts and can connect with other people, so that they can help raise money to run the non-profit company (Carver, 2011). However, it should also be apparent that the board does not exist merely to fundraise, but also plays the classic duties of boards such as oversight over the management.

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Board to Safeguard the Organization’s Mission

In many occasions, the Board is the most permanent feature of the organization. Some Board members serve at the organization for decades. In most cases, employees, including senior management, come and go, while never fully comprehend the mission and the philosophy of the organization. When they ultimately learn it, they take it away with them when leaving (Carver, 2011). This calls for the appointment of a Board that acts as the caretaker of the philosophy and mission of the organization ensuring (Carver, 2011). Thus, the Board serves as the institutional memory of the vision and mission of the organization by ensuring that subsequent leaderships and employees affect the mission of the organization.

In this case, I would appoint a board that knows and safeguards the mission of the organization. In any organization, the maintenance of the core values should be an institutional aim that the organization should try to achieve regardless of any cost. Failure to follow a clear path on issues, especially, the mission of the organization, can ultimately lead to a lack of focus in the organization that can cause an impediment in achieving the vision of the organization. While the Board can be a working board, one with credibility, relevant experience and can assist in raising money for the organization, the ultimate measure should be its ability to maintain the core values of the organization and its values. Moreover, a board that safeguards the core mission of the organization can also be tailored to meet most of the other aspects.

The Number of Directors the Board Should Have

Different organizations will have a different number of board members depending on the prescriptions of the law, its needs and leadership style. In many states, the law sets the minimum number of directors at three, without prescribing what the maximum ought to be. However, seven seems to be the right number for any organization. While seven is quite enough to ensure that the attending ones replace those who miss the meetings of the organization and fulfilling the legally mandated number of three, it is also small enough to ensure consensus on some issues. Moreover, having an odd- numbered member board will guarantee that voting decisions are easier achieved as there will be no ties.

Who Should be on the Board of Directors

McRay (2009) suggests that an organization should be careful about whom it invites to sit on its board, especially on its initial stages. The character of the inertial board can determine the kind of organization, and its financial success and impact. Accordingly, McRay (2009) also admits that the organization requests to on its board must first, have the organizations since of mission. Without them owning the mission of the organization, then their value to the organization would be minimal. Secondly, people who sit on the board should have organizational or business acumen, for instance, by understanding the principles of good corporate and business admiration (National Council of Non-Profits, 2015). Thirdly, the people should be long-term strategic thinkers who see the value and mission of the organization beyond the short term, including the medium and long terms (National Council of Non-Profits, 2015). Moreover, people who are willing to sacrifice their time and resources especially in the case of board members in a non-profit so as to ensure that the organization attains its mission. Lastly, and especially in a non-profit, they should be people of integrity (National Council of Non-Profits, 2015). If people who do not have integrity sit on the Board, there is a possibility that potential donors or investors will find it hard to give their money since they will not feel safe.

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With this taken into consideration, the organization should take care to invite to the board the experts in various professions, so as to have a wide purview of issues (National Council of Non-Profits, 2015). For instance, an attorney, accountant or a financial expert, plus a human resources expert, should always form part of a board as they can highlight the problems if any within the organization.

How to Recruit Directors and Get Them Agree to Be Members of the Board

Serving on board is usually a case of honorary service. Thus, it is an elaborate process to recruit the board member and convince him/her to serve there. The nominating committee should carry out this function (McRay, 2009). The committee should first create a list of people that they feel will adhere to the mission of the organization. Then it should subsequently discuss this with the rest of the Board. After agreeing, the person should then be invited for an interview (McRay, 2009). If personally known to any of the committee or board, that party should call the person and see if he/he agrees to come for the interview, arrange the time and place for it.

It should be clear that the prospect is attending an interview, and and it is not a guarantee for him/her to become a board member (McRay, 2009). During this interview, as much information as possible should be sought from the prospect on his/her values vis-à-vis those of the organization (McRay, 2009). The committee should clarify clear to the candidate the advantages of joining the board, including servicing the greater good. If the prospect expresses the interest in joining the team, the committee should arrange a new meeting to discuss the possibility of joining it.

How a Board Works

Meetings

A board should meet within a set time, usually at learn once a year. The number of times the board should meet in any particular period, whether annually or biannually, is set in the rules and procedures of the documents that govern the organization (Davies, Worthington, Micheler, & Gower, 2012). In rare cases, some of these meetings can be conducted through the use of modern electronic means such as the use of conference calls (Davies, Worthington, Micheler, & Gower, 2012). Meetings also need to have a quorum which the governing documents should specify. Without it, the decisions of the meeting are lawful for the organization.

During the meeting, major corporate governance events happen. For instance, the Board reviews the performance of the company for the last financial period (Davies, Worthington, Micheler, & Gower, 2012). They also review the performance if the management and the adherence to the mission of the organization set the agenda for the organization over the coming period.

Officers

The board has several officers who are involved in its day to day running.  The first is the President of the Board or the Chairperson. His/her role is to work with other board members to ensure that the organization runs smoothly and accomplishes its set goals (Davies, Worthington, Micheler, & Gower, 2012). The President/Chairman also deals with the issues, problems and policy concerns of the board in conjunction with the other board members and other officers.

The Vice President/Vice Chairperson is the principal assistant to the president. He/she may also have principle areas to oversee as well under the guidance of the board and the chairperson (Davies, Worthington, Micheler, & Gower, 2012). In some cases, there are several officers all dealing with different aspects of the company.

How It Works


The third officer is the Secretary. As in any other body, the Secretary takes minutes at the board meetings (Davies, Worthington, Micheler, & Gower, 2012). He/she also keeps records and any requisite files of the decisions and other activities of the board (Davies, Worthington, Micheler, & Gower, 2012). The secretary is also responsible for informing other members of the next meeting including sending out minutes of the previous meetings as well as agendas for the next ones (Davies, Worthington, Micheler, & Gower, 2012). Usually, the secretary is in charge of the communication between the Board and outside parties too.

The last officer is the treasurer. The Board charges the Treasurer with being in charge of the finances in the organization (Davies, Worthington, Micheler, & Gower, 2012). Although there is often no such requirement, the person is often a lawyer, an accountant or banker. The Treasure has to work in close conjunction with the staff member who is in charge of the finances of the organization (Davies, Worthington, Micheler, & Gower, 2012). In cases where the organization has a working board, the Treasure may also be the person who is the staff member in charge of the finances.

Committees

Other than the officers, the Board appoints various committees to help it accomplish its set aims. Most committee members tend to volunteer for the committees they want to serve in. However, it is advisable to match the committees with the skills of the board members (Larcker, Tayan, & Zhu, 2014). Committees are either ad hoc or standing. There are four main standing committees in the board: namely, committee in charge of finances, fundraising committee, executive committee, and public relations, political action, and community health committees.

Finance Committee

This committee is in charge of the financial oversight in the company. The leader of this Committee is usually the Treasurer. Among other things, it checks the annualized budgetary processes of the company (Laux & Laux, 2009). It is also involved in financial planning and monitoring. This committee also creates and monitors internal fiscal controls and ensures monetary in an organization (Laux & Laux, 2009). The committee, in conjunction with the relevant staff members, also sets the long-term financial plan.

Executive Committee

The Executive Committee sets the agendas for the Board meetings and acts for the organization in case it is impossible to constitute the entire board. This committee consists of the chairpersons of the various committees and senior officers of the company (Laux & Laux, 2009). The President is a member of the Committee and usually, seats as its chair.

Fundraising Committee

The Fundraising Committee is in charge of ensuring that fundraising at the organization is planful and strategic. Among other things, this committee ensures that there is a precise fundraising target for which they aim to achieve (Laux & Laux, 2009). The Committee also has to look for and identify specific potential sources of funds from the sources that are available to the organization including  developing action plans in how to approach the various sources of funds (Laux & Laux, 2009). Lastly, the committee has to ensure that it develops a Fundraising Plan that the Board can approve.

Public Relations, Political Action, Community Health Committees

Organizations will often have other committees depending on the purpose of the organization. These include Public Relations in charge of maintaining good working relations with the public (Laux & Laux, 2009). Next, Political Action Committee is usually in charge of lobbying. Community Health Committee ensures that the public health concerns of the area that the organization is ultimately taken care of.

Corporate Director’s Duties and Responsibilities

Corporate directors are in theory in charge of the governance of any corporate body. To ensure that they act in the best interests of the shareholder, the law in common law countries have imposed strict requirements on the directors. The duties and responsibilities apply to both the directors individually and the whole Board.

Duty of Care and Best Interests of the Company

The law requires the corporation to exercise the duty of care at all times concerning the company. One must exercise care that a reasonable different person would exercise with respect to general knowledge, skill, and experience of any person who could be accruing out the duties that the director is accruing in any company (Eisenberg, 2006). Secondly, with the general knowledge, skill, and experience that it is apparent that the director has as a person. Admittedly, in this case, the duty of care will be calibrated against both the objective and subjective standards (Eisenberg, 2006). If an ordinary person could reasonably expect more from a person in the director’s position, the director’s skill and knowledge will not be acceptable (Eisenberg, 2006). On the other hand, if the director is skillful, knowledgeable, and experienced person, one will expect more efforts from him/her.

The director also has to act in the best interests of the company at all the times. For instance, the director is not supposed to compete with the company as this will be a breach of trust (Eisenberg, 2006). Secondly, he/she must not also use any information about the company,opportunity arising out of the company or its property received during his/her servicing, without the express authority of the rest of the company (Eisenberg, 2006). Moreover, it concerns the issues that might result in any conflict of interest such as dealing with the company as this would result in the director acting in his/her own interests. All this stems from the common law rule of the business judgment rule that explains that the law will presume that the directors will act on a bona fide basis for the corporation and its stakeholders.

Loyalty to the Corporation and Its Shareholders

The law mandates the directors to act in absolute loyalty to the corporation and its shareholders. In cases where there is a conflict of interest, it is impossible for the director to be loyal. Moreover, according to Gold (2009), directors may also be disloyal to the company and subsequently the shareholders if they act in a manifestly bad faith. This has meant that even in cases when the directors have no conflict of interests, the courts can adjudge them to have acted disloyally according to the Delaware Supreme Court (Gold, 2009).

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The duty of loyalty in the case of directors and companies is the primary rule in relation to fiduciary relationships. In cases, where directors take advantage of their position to divert the assets, opportunities, and information from the company to their personal benefit, it break a law.

Participating in Regular Meetings of the Board of Directors

The decisions on how the corporation will be running, as a review of its performance and that of the officers and other employees, is carried out during the board meetings. Each of the directors has to do his/her duties in good faith, in the interests of the corporation and with the care due from his/her position (Davis, 2000). This can only happen if the direct attends the meetings. If a director fails to appear at the meetings of the organization’s board regularly, this can be a signal that he is unwilling or unable to exercise his fiduciary duties in relation to the corporation and the mission it is trusting to accomplish (Davis, 2000). Bylaws should state that one can lose his director’s position after they miss a specified number of seatings so as to encourage attendance.

Approving Certain Corporate Activities and Transaction

The directors, as the ultimate government institution in the organization, has the duty to approve or disprove certain transactions and activities before tie go ahead. This is meant to keep the management in check and also ensure a smooth running of the organization (Davis, 2000). These include the election of new corporate officers, purchases of new assets by the business, and the drafting and approval of new policies for the running of the organization.

Amending the Corporation’s Bylaws or Articles of Incorporation

The law has evolved from the time it required only the shareholders could amend the bylaws of the company. Most legislations provide that the shareholders can choose to delegate the authority to amend or change the bylaws to the directors. Moreover, According to Dooley (2011), the Model Business Corporation Act has made it possible for the shareholders to amend the by bylaws unless the articles of association and that power exclusively to the shareholders or if the shareholders themselves amend the bylaw and thus remove the need for it to amended by the directors.

Having established that the directors can amend the bylaws of the organization, there are several reasons why can do change any problematic part of the articles of incorporation. This can be so as to change the address and location the corporation, change or modify the corporation’s name, increase the number of shares and any other part that touches on the rights and obligations of the corporate.


Conclusion

The essay sought to describe the corporate board structure. As it is apparent, the board is a corporate board structure made up of the Chairman and directors. The directors can be either inside, outside, and busy directors. The preferable kind of the Board is the one that will serve to protect the mission of the organization, without this, the organization would lose its identity. Moreover, this Board can be tailored to have the other characteristics. As concerns the number, seven would be a good number of directors to have. Among these, there should be various professions represented from such areas as law, finance, and accounting so as to ensure all fields of the corporate life are covered. Prior notice as well as the explanation serving on the board will do the greater good and can assist in convincing prospective candidates to join the board of directors. The Board works through the holding of regular meetings, its officers, and various committees. Lastly, a corporate director has a variety of duties whose main purpose it so ensures that he/she acts in all instances for the welfare of the shareholders and the corporate. These include the duty of care, loyalty, participating in meetings. The Directors also have the power to approve derail duties and responsibilities and amend the corporation’s bylaws and articles of association.