What is a Board?
Board is a collective noun for all the Directors of a company.
Why is it needed?
Every company needs Directors – they are the people that make the decisions on behalf of the company.
Responsibility to shareholders
Directors have a duty to look after the interests of shareholders (the owners of the company). This is a “fiduciary” or legally enforceable duty – Directors can get into serious trouble for breaching this.
Different sorts of Directors
Directors are often referred to as “Non-executive” or “Executive”. Non-executive directors play no role in the day-to-day management of the company. Their job is to make sure that the Executive Directors, the people running the company, do their job properly. Most directors of investment companies are non-executive and investment companies do not need to have any executive directors if all of the day-to-day running of the company is outsourced.
What do they actually do?
The Board meets regularly to review how the company is doing. They check up on the activities of the executive directors and the various people supplying services to the company (such as fund managers, accountants, bankers and brokers) and hire and fire them if necessary. They preside over the publication of reports to shareholders. They also have responsibility for the strategic direction of the company and for thinking about how to handle the risks that the company faces.
They set up some sub-committees to handle specific jobs – like the Audit Committee which looks after the company’s accounts and internal financial controls and manages the relationship with external auditors.
How are Directors chosen?
New Directors are usually chosen by the existing Directors. They might set up a Nominations committee just to carry out this function. Other people can suggest that they should be elected to the Board. However, the ultimate decision rests with the shareholders who approve all appointments.
Shareholders can get in touch with Directors at any time but they get a chance to question Directors in person at the company’s Annual General Meeting.
Challenging Directors’ decisions
Anything that needs shareholders’ approval, like the Annual Report & Accounts, has to be voted on at a General Meeting of all shareholders. If the Directors do something that shareholders disagree with, there are rules that allow individual or groups of shareholders (you need 5% of the company or 100 of you) to put proposals to a meeting of all shareholders. That could include firing the existing Directors.