Definition of Board of Directors

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When you spend any amount of time with top officers in the corporate or nonprofit world, you are likely to hear leaders talking about the board of directors. Perhaps they want to make changes in the organization but need the board to approve them first. Maybe a leader is stressed about his performance review with the board of directors, or it could be that the board of directors has caught the leader's vision, and the organization has begun to grow by leaps and bounds.

Whether you are starting your own business or filing for government nonprofit status, understanding how a board of directors works could be important for your success.

TL;DR (Too Long; Didn't Read)

The board of directors for a public company represents shareholders and protects their interests. For nonprofit organizations, the board ensures the organization is acting in line with its mission.

Board of Directors Definition

Any good board of directors definition recognizes that this governing body has a lot of power in terms of organizational direction and leadership. In a public company, the board of directors represents shareholders and protects their interests in order to make them money over the long haul. The board is concerned with leadership, fiscal policies and the bottom line.

In the nonprofit world, the board acts similarly, as it ensures the organization is acting in line with its mission and vision for serving others. This benefits the nonprofit's clients as well as protects the interests of donors contributing toward the cause. It ensures proper handling of finances and the overall growth of the nonprofit.

Role of the Board of Directors

In both the public company and the nonprofit world, the board of directors fulfills a variety of tasks in order to protect the overall health of the organization, shareholders or donors. These roles are prescribed by the organization's bylaws but often include some or all of the following:

  • Executive officer performance reviews
  • Executive officer hiring and firing
  • Budgetary reviews
  • Fiscal policy reviews
  • Legal compliance reviews
  • Strategic oversight of the organization
  • Advising executive officers
  • Contributing financially toward the organization (nonprofits)
  • Generating funds for the organization (nonprofits)
  • Facilitating community connections and marketing

While the board of directors helps to shape the direction of the public company or nonprofit, it is not responsible for managing or overseeing employees outside of executive officers like the CEO or executive director.

Common Seats on the Board

No board of directors definition is complete without a basic outline for seats commonly held by board members. While available seats may vary from one organization to another, there are several typical roles held by board members:

  • Board Chair: The board chair oversees the board as well as the organization's governance to ensure it is operating in alignment with the organizational mission, vision, financial growth and in the best interest of the shareholders or donors. The board chair runs the board meetings and meets regularly with executive officers and with board committees.

  • Vice Chair: The vice chair assists the board chair in her responsibilities, sits on board committees and meets with executive officers regularly. When the board chair is not able to be present at board meetings, the vice chair assumes her responsibilities.

  • Secretary: The board secretary is responsible for keeping minutes during board and committee meetings, filing them properly and distributing them to other board members.

  • Treasurer: The treasurer oversees the fiscal health of the organization, meets with executive officers and the board chair to review the budget and ensures the organization is meeting its tax obligations. Treasurers also help to prepare financial growth projections and share appropriate reports with shareholders or donors.

  • Legal Adviser: Many boards include a legal adviser who can look out for the legal interests of the organization. This key player is an expert in issues of insurance, client relations, financial management, liability and other legal concerns of the organization.

  • Experts: Experts and advisers often hold seats on the board of directors. These seats could include positions like a community liaison, social media expert, marketing expert, fundraising expert, client-base representative and more.

  • Internal Seats: Many boards include seats for those within the company or nonprofit organization in order to have all voices represented in an equal way. Sometimes internal seats include voting rights, while other times they do not. 

Are Board Members Employees?

Internal seats on the board are often filled by employees. For instance, the CEO or executive director often holds a seat on the board and on board committees. In this case, he is not paid additional salary for being on the board. In nonprofit organizations, board seats are typically volunteer positions. Politicians, clergy and local business leaders can make a difference in the community while also building a solid reputation for caring.

In public companies, external board members are often compensated for their time and expertise. Salary ranges depending on the size of the company, provisions prescribed by the bylaws and past practice of the board. While the typical board salary ranges from $19,758 to $184,477, the average salary for board members is $60,000.

Executive Officers and the Board

Executive officers of public companies and nonprofit organizations are responsible to the board for their duties and performance. The board regularly conducts performance or effectiveness reviews of the CEO or executive director. Depending on the bylaws, reviews could happen every quarter, twice per year or annually. In essence, the board is the executive officer's boss or manager.

Executive officers also meet with key board members and sit on board committees. In addition to attending board meetings, they regularly meet with the board chair and treasurer. They are typically included in committee meetings for the governance committee, internal affairs committee, external affairs committee, finance committee and executive committee. The executive officer may or may not get a vote on the board depending on the bylaws, but she is present for most important meetings.

Filling Your Board Seats

Filling board seats for your public company or nonprofit organization is an important step toward success and is often a government requirement. Finding initial candidates when you are just starting out can be a challenge, and it can take a year or two to forge strong enough relationships with candidates to know whether they will truly be a good fit or not.

Once your initial board is in place, current board members will have connections to future potential candidates who can apply to serve a term. The board may form a committee to review applications and hold interviews so that the board can vote on additional board members.

Finding Open Board Seats

Sitting on a board can be an excellent way to establish yourself and your business as a vital part of the community, with expertise that makes a difference for others. The more you build relationships with others in your community, the more likely you will be invited to apply for a position on the board.

If you have never held a board position before, consider aligning yourself with a nonprofit organization in order to volunteer on their board. Once you have some nonprofit board experience under your belt, it might be easier to find a paying seat on a public company board. These connections are typically made through business networking but are sometimes found in online listings or through professional organizations.