The Board of Directors, sometimes referred to as the “Board”, is a group of people elected by a corporation’s shareholders to represent their interests. The board jointly supervises the activities of an organization and ensures the company’s management acts on shareholders behalf.
The board of directors appoints the chief executive officer of the corporation and sets out the overall strategic direction. The head of the board of directors is the chairman or chairperson of the board. The balance of power between the CEO and the chairman is a unique situation and varies widely. The CEO is generally unable to make significant changes without consent of the board. As the job of CEO depends on satisfying the board, the chairman of the board is therefore their superior. Most chairmen however are not hugely involved in the day-to-day running of the company leaving the CEO with sufficient flexibility to run the company.
The Legg Mason (LM) board of directors consists of 9 memebers one of whom is famed activist investor Nelson Peltz of Trian Fund Management. Companies generally display this information on their websites detailing the experience and depth of the board.
Board meetings are held periodically so enabling directors to discharge their responsibility as listed below. This also gives individual directors the opportunity to report on their particular areas of responsibility. In the case of a merger or takeover, especially if it is an unsolicited hostile takeover, the board will convene with greater frequency than previously observed. Board members are usually elected on an annual basis for a period of 1 year. However, this may differ amongst firms. Longer terms, or the use of a staggered board can be used as a shark repellent against a hostile merger but may also attract criticism of board entrenchment.
The Role of the Board of Directors
The board of directors key role is ensuring the prosperity of the firm. This is achieved by overseeing company affairs whilst simultaneously achieving the interests of the shareholders and stakeholders. Typical duties of a board of directors may include but not be limited to
- Vision, mission and values
- establish broad policies and setting out strategic objectives
- determine the company’s vision and mission for its current operations and future development
- determine which values are to be promoted throughout the company
- review company goals
- exercise accountability to shareholders and responsibility to relevant stakeholders
- Human Resources
- selecting, appointing, supporting and reviewing the performance of the chief executive
- terminating the chief executive
- setting the salaries, compensation and benefits of senior management
- delegate to management
- Finance
- ensure the availability of sufficient financial resources
- approving the annual budget
- Vision, mission and values
