A board of directors monitors and advises an organization. It is independent of the management of the company and makes the decisions that assist the company to grow. It ensures that the entity is operating in accordance with laws and in the best interests of employees, investors and other stakeholders. The Board members must possess broad expertise and experience, and strive to establish an environment of trust and transparency.
A board’s structure, size and members vary according to the nature of the business entity, whether it’s publicly traded (a public company), not publicly traded (private or limited), owned by employees or family members (family or employee-owned) or tax-exempt (a nonprofit or charity). The governance of every board is determined by its own set of rules that can be set out in its articles of incorporation or in other bylaws.
The board’s primary responsibility is to fulfill three essential obligations.
A well-rounded board has members with a range of backgrounds and experiences. They are generalists that can hold a helicopter perspective, and yet experts in their areas of focus. They are able to tackle tough questions and challenge management’s assumptions. The most effective boards also encourage diversity, and encourage collaboration as well as communication and trust.