Board of Directors (BODs) Meaning, Definitions, Board Meeting, Committee Meeting11/10/2022 1 By indiafreenotes
A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organization, or a government agency.
The powers, duties, and responsibilities of a board of directors are determined by government regulations (including the jurisdiction’s corporate law) and the organization’s own constitution and by-laws. These authorities may specify the number of members of the board, how they are to be chosen, and how often they are to meet.
In an organization with voting members, the board is accountable to, and may be subordinate to, the organization’s full membership, which usually elect the members of the board. In a stock corporation, non-executive directors are elected by the shareholders, and the board has ultimate responsibility for the management of the corporation. In nations with codetermination (such as Germany and Sweden), the workers of a corporation elect a set fraction of the board’s members.
The board of directors appoints the chief executive officer of the corporation and sets out the overall strategic direction. In corporations with dispersed ownership, the identification and nomination of directors (that shareholders vote for or against) are often done by the board itself, leading to a high degree of self-perpetuation. In a non-stock corporation with no general voting membership, the board is the supreme governing body of the institution, and its members are sometimes chosen by the board itself.
Typical duties of boards of directors include:
- Governing the organization by establishing broad policies and setting out strategic objectives
- Selecting, appointing, supporting and reviewing the performance of the chief executive (of which the titles vary from organization to organization; the chief executive may be titled chief executive officer, president or executive director)
- Terminating the chief executive
- Ensuring the availability of adequate financial resources
- Approving annual budgets
- Accounting to the stakeholders for the organization’s performance
- Setting the salaries, compensation and benefits of senior management.
- The board of directors’ foremost responsibility or duty is towards the company’s stakeholders. Here, the board ensures that the company doesn’t risk the shareholders’ and investors’ assets. It frames policies for dividends, payouts, present their perspective to the organization, etc.
- Another important board of directors function includes holding the annual shareholders’ meeting. In such board meetings, the panel announces annual dividends, elects and appoints new members and high-level executives, and changes corporate rules.
- The BOD builds a company’s foundation by framing its vision, purpose, and mission. The board ensures that the executive board of the company is working as per organizational goals and plans. Company executives hold answerability to the board and must act in the best interest of the firm and its stakeholders.
- The board also takes crucial strategic decisions and plans for mergers and acquisitions, stock split, etc. The BOD’s also votes and elects the company’s chief executive officer (CEO). It can also sack a CEO who is bringing problems to the firm.
- It ascertains compensation for the organization’s top officials. It even amends and approves the company’s annual budget.
- Crisis management is perhaps one of the most crucial roles played by a company’s BOD. When a company is in crisis, the BOD gives it a shield as it represents the firm and is accountable for its actions. Executives rely on the board’s counsel when a crisis strikes.
- One such example where the leadership of higher authority pulled the company out from a crisis is Johnson and Johnson’s case. In 1982, after intaking Johnson and Johnson’s Tylenol capsules, seven people died of poison as they were laced cyanide. James Burke, the company’s chairman back then, is still admired for his prompt action, leadership and honesty.
A Board Meeting is a formal meeting of the board of directors of an organization and any invited guests, held at definite intervals and as needed to review performance, consider policy issues, address major problems and perform the legal business of the board. Presided over by a chairperson of the organization, the quorum, rules, and responsibilities for board meetings will be documented in the organization’s operating agreements and may need to meet government requirements. The finalized and approved record for a board meeting is called the minutes, a legal document published according to the rules governing that board’s operations.
Board meetings can vary depending on how mature a company is. Start-ups and tech companies sometimes favor a more pragmatic approach, while larger corporations typically follow strict guidelines meant to help provide order and structure. Still, many of the components of these board meetings remain very similar.
Before a board meeting begins, a document is circulated, consisting of a report by each director itemizing anything that needs attention and their value judgments concerning various issues.
When the board meeting begins, a person, usually the CEO of the company, presents an overview of how well their goals are being met and any issues that need to be addressed. Directors may present on their sections as well, or merely be present to answer questions if the report was sufficient.
Following this, a member of the board will raise topics that they feel need addressing or comment on progress toward various goals. The board chair will then elicit discussion by seeking comments on what was presented and take action on any issues that came up.
The board may wish to have a discussion without the CEO or others leaders present, in order to assess their performance.
Sometimes other procedural motions are required before the meeting is adjourned, such as certifying stock option grants.
Committee meetings serve a vital function in corporate life. They are the mechanism by which specific subgroups within an organisation are galvanised behind a common objective, and achieve specific often vital goals that help an organisation to operate and move forwards. In the case of boards, committee meetings are the mechanism by which directors and non-executive directors chart the course for their organisation.
However, many people misunderstand the definition of committee meetings, and underestimate their significance in organisational achievement. Having a poor understanding of what committee meetings are and how they operate can lead to strategic impotence and a lack of follow-through on the pre-agreed charter that a committee operates beneath.
A committee meeting is a formal gathering of a subgroup within an organisation who come together to fulfil a predefined objective. The meetings are a forum for the exchange of ideas so that a committee can complete its set of tasks. Committees usually have a title, such as a Steering Committee, or Corporate Governance Committee.
As one of the more important types of formal meetings, committee meetings should only be attended by those who have been selected by the management or the board. They are likely to either be subject matter experts in the field that the committee is working in, or members of the leadership or teams who will be tasked with delivering the work in support of the objectives that the committee is working towards. They should therefore be a lean meeting, likely to have fewer participants than other types of meetings, or even board meetings themselves. For example, a steering committee should likely only involve participants who are involved in the leadership of the project or initiative in question, along with advisors who can help provide context or expertise to the project.
- Steering committee meetings
A Steering Committee is usually formed of high-level executives and stakeholders, for the purpose of guiding a project or initiative, along with the programme or project managers who are charged with its delivery. The Steering Committee is not, itself, involved in the day-to-day management of the project or initiative, but rather provides overall vision and strategic direction, through deliberation, ideation, recommendation, and decision making. Therefore, a Steering Committee Meeting is a real-time exchange between these stakeholders for the purpose of fulfilling their collective duties, allowing them to effectively ‘steer’ the project or initiative in question.
- Governance committee meetings
A Governance Committee is at the centre of the compliance of both for-profit and not for-profit organisations. The Governance Committee provides a supervisory role to the board of an organisation, just as the board supervises the organisation as a whole. The Governance Committee ensures that a board is complying with its obligations, as well as helping to recruit additional board members, and making recommendations on the re-election, retention, or removal of members, too. Therefore, a Governance Committee Meeting is a formal meeting that enables committee members to deliberate, discuss, and take decisions on the matters that are central to their function. Attendees of these meetings will include a number of the directors of the organisation, as well as a number of non-executive directors, given the scope of this committee’s power.
- Remuneration committee meetings
The importance of remuneration committees cannot be understated, as they help define the way that directors are incentivised and rewarded. They set the organisation’s remuneration policy, including each individual director’s total individual remuneration and the associated targets that must be met for performance-related pay. Remuneration committee meetings are therefore smaller than other meetings, as they comprise only two or three independent, non-executive directors. In many cases, remuneration committee meetings will take place only two or three times each year. The first meeting will be to agree the KPIs for each director and ensure they are aligned with overall company goals. The second meeting is usually to assess each director against these KPIs to see what has been achieved. In some cases, a third meeting can take place in-between the two to see if progress is on track and whether any corrective action is needed.