Board of Directors

A company's board of directors helps management develop business plans, policy objectives, and business strategy. Not all small businesses have or need a board of directors, but as the business grows and matures in the marketplace, a board can be a valuable tool to help management set the direction for growth and provide valuable insights from a different perspective and knowledge base.

Directors monitor a company's financial performance and the success of its products, services and strategy. They are expected to follow developments that affect the business, and set aside any potential conflict between their personal or individual business interests to support the well-being of the business which they serve.

The most effective board of directors will be a group of professionals who bring a breadth of skills, experience and diversity to your company. Ideally, members of the board should have backgrounds and contacts that differ from - but complement - the background of the officers of the company and of the other directors. As a company grows and changes, the governing board also should evolve to meet changing needs and circumstances.

Before a single person is nominated to a board of directors, the board's institutional structure should be documented in a set of written bylaws. Bylaws answer questions such as:

  1. How many members will the board have?

    What is the best size, or number of board members, to help your company achieve its mission? Look at the number of the roles you need board members to fill.

  2. How and when will board members be elected? How long should they serve?

    Board members usually serve two to four years. Terms generally expire on a staggered basis so that new members are not all selected at the same time.

  3. What officers and committee structure will form the backbone of your board?

    Standing and sometimes temporary committees are charged with keeping certain subjects under review, focusing the board on those things that need board attention, and making constructive recommendations for board decisions. One of the first committees to establish is the nominating committee, which selects candidates for board vacancies. The nominating committee should be a permanent, ongoing committee, with its responsibilities clearly spelled out in the bylaws or in a board resolution. Other standing committees commonly included are finance or budget, audit, personnel policy, executive evaluation, and a building or facilities committee.

  4. How often should your bylaws be reviewed and updated?

  5. How will your board assess its own performance?

Responsibilities of a Board Member
Board members may have specific responsibilities that are unique to the business or industry in which they perform. The Board of Directors will also have a variety of responsibilities which are defined in the Bylaws of the Organization and in numerous Federal and State statutes and regulations.

An attorney should be involved when defining the specific responsibilities for the Board of Directors in conjunction with organizing the corporation. However, every board shares a set of general responsibilities that board members should be prepared to assume when they serve. The following checklist may be helpful to consider when the board conducts its self-assessment.

Attendance Board members agree to attend board meetings and participate in some committee work.
Mission Directors agree to define the mission and participate in strategic planning to review a company's purposes, priorities, financial standing, and goals.
Chief executive Directors must be prepared to approve the selection, compensation, and if necessary, dismissal of the chief executive, and to assure regular evaluation of the executive's performance.
Finances Directors must assure financial responsibility by:
  • Approving the annual budget and overseeing adherence to it.
  • Contracting for an independent audit.
  • Controlling the investment policies and management of capital or reserve funds.
Planning oversight and support Directors agree to oversee and evaluate strategic business plans and support management in carrying out those plans.
Board effectiveness Directors must evaluate how well the board is performing and maintain an effective organization, procedures and recruitment.
Growing pains As a company evolves from startup to growth toward maturity, the responsibilities and character of its board of directors will evolve as well. Challenges that may come with growth include:
  • Weaning directors away from involvement in operations and management.
  • Addressing the needs and problems of a large staff.
  • Bringing aboard new people and new ideas.

Selecting Board Members
In selecting a Board of Directors, the following questions should be addressed:

  1. What additional responsibilities will the board members have? Will they assist in promoting the company or identifying potential sources of capital?
  2. Will the board members also become shareholders?
  3. Are their any potential conflicts of interest with the candidates?
  4. What expertise should the board members have?
  5. Will they add diversity of experience and knowledge to the company?
  6. Will the board be compensated for meetings or paid a director's fee?

What Makes a Successful Board Member?
A board member's success is determined not only by their business skills and experience, but by their personality traits, or character. In his book Welcome to the Board, author Fisher Howe identifies several characteristics of successful, happy board members:

  • They are honest.
  • They are enthusiastic.
  • They keep an open mind.
  • They are team players.
  • They tackle complex problems with relish.
  • They take an orderly approach to decision making.
  • They are competent.
  • They have a sense of humor.