A board of directors manages a corporation or an organization's activities. A board of a for-profit corporation can be well compensated. The board of a nonprofit may be responsible for raising funds and making personal donations. A company or nonprofit's bylaws determine the board's roles and responsibilities. State laws regulate and monitor a board's actions. The names board of governors, board of regents, board of trustees or board of executives can be used alternatively to mean board of directors.
Have you been asked to become a board member of a board of directors and wonder what your role will be? Or, maybe you're involved in setting up a board for an organization and want to know the different types that are commonly used. There are many types of boards of directors, including some that are more suited to nonprofits and others that work better in corporate situations. Many are a combination of several types. Some boards act as staff for businesses that don't have their own employees, some boards are more hands off and act in advisory roles only and many board of directors' roles lie somewhere in between.
Board of Directors Definition
A board of directors is a group of individuals who guide, steer, advise or operate an organization. They can be elected or appointed depending on the type of organization. By law, most corporations must have a board of directors (with the exception of S corporations). Publicly traded corporations must allow their shareholders to elect the board members. Typically, they are nominated by shareholders and others, and the corporation compiles and sends a slate of candidates to all shareholders for voting.
A nonprofit board of directors provides valuable advice and guidance to the organization. Most operate at arm's length with a watchful eye to the future, but they can be as involved as the organization needs them to be, sometimes even acting as staff members.
State and federal laws require corporations, including nonprofits, to have a board of directors to provide oversight and make sure decisions are made soundly and ethically. A few states allow the corporation to have as few as just one board member, but most states require more. For example, it's common to have at least a board chairperson, a treasurer and a secretary to take minutes at the required annual board meeting and any other meetings throughout the year. If you're involved in forming a new board of directors, be sure to find out the specific federal and state laws that apply to you.
Different Kinds of Boards
Ask any board member or CEO of an organization about the different types of boards or even the type of his own board, and you'll get a huge variety of answers. That's partly because the same types of boards go by different names. It's also because CEOs and board members don't know what kind of board they have. They only know how their board operates and how their board members are selected. Many organizations use combinations of board types anyway, so they can't put a name on it. There are certain types or models of boards that you'll hear mentioned again and again, however.
Advisory boards typically don't have authority to make decisions for the organization. Instead, they provide advice to the actual board of the organization or to someone in the organization when asked. Advisory board members have expertise in particular areas. For example, a CEO might ask the advisory board for help with public relations if one or more of its board members has that experience. Or, the board of directors of an organization can ask an advisory board for advice in a certain area or about a certain issue with which they don't have experience.
Collective, consensus or cooperative board members have a shared focus and vote collectively as a group. Each board member has an equal voice and vote. All board members are expected to contribute equally. This model is often used when a nonprofit organization doesn't have a CEO or when a corporation doesn't have major shareholders.
Fundraising boards don't really function as typical boards. Their sole purpose is to raise funds for a nonprofit organization. Therefore, these board members are usually influential people with numerous connections they can contact to encourage donations.
Patron boards are a type of fundraising board where the board members are wealthy individuals who support the organization with their own money. They may also reach out to their wealthy counterparts with whom they network with and ask them to donate as well.
Governing boards have been given the authority by its owners or founders to control and direct the organization, and it's understood that the governing board is operating in the owners' best interests. Governing boards typically operate by providing direction to those in charge but not running the organization. Instead, the board focuses on the bigger picture and future goals.
Managing/executive boards actually run the organization's day to day operations, making decisions together instead of having a CEO. They handle both current business and plans for the future. Usually, they form committees chaired by different board members, such as programs, fundraising, finance and publicity. Each committee handles those functions for the organization in lieu of hiring employees for each area.
Policy boards can be any type of board that forms policies or directions that are then carried out by the organization's CEO or other appropriate employee. The policy board model was developed by John Carver in the 1970s and is therefore sometimes called a Carver board model or Carver's policy board. It became very popular with nonprofits, though it works for corporations too. Many organizations use the Carver policy board model, but many others have found problems with it, largely because it gives a great deal of authority and decision-making power to the CEO.
Competency boards are comprised of board members who have specific talents and experiences to bring to the rest of the board and benefit the organization. One board member could have expertise in fundraising, another may be an advertising agency owner, a third might own a high-tech company and so on.
Cortex boards put additional emphasis on the value of the organization to the community. As the board of directors sets goals, they include goals for helping or giving back to the community. Part of the direction the board gives the organization is how to meet these goals. When evaluating their success in meeting all goals, they consider how well they served the community to be just as important as profit, budget and other goals.
Working boards also function as the staff of small organizations that can't afford to hire other employees. Unfortunately, it's difficult to do both, and it's usually the board functions that are neglected as the working board focuses on the day to day operation of the organization.
Combining Board Types and Models
It's very common for both corporate and nonprofit boards to use a combination of board types for their actual board model. For example, an organization that uses a competency board, where members are chosen for their individual expertise, may also be a working board if the business can't or doesn't want to hire employees to do the individual jobs.
A policy board could set the goal of contributing to the community as one of its policy directives. This would use some aspects of a cortex board, though it might not be a true cortex board because the organization has other goals that it considers to be equally or more important.
Sometimes, boards are set up deliberately as a combination of board types. More often, though, the board changes its direction or composition over time, or the organization's needs change, requiring changes to the way they choose their board of directors. Eventually, they have a combination of types whether they're aware of it or not.
If you're considering becoming a board member of a board of directors, ask what your role would be as well as what the roles of the other board members are. Ask about the organization's expectations for the time and effort you'll contribute, how many meetings you'll need to attend and how the previous board members handled the role. If the board is just forming, it's even more important to find out how the CEO envisions the board members' roles because they don't have a track record you can examine. Getting answers to these types of questions is more helpful to you in the long run than pinning down the exact type of board of directors an organization has or plans to establish.