A board of directors is a governing body comprised of a group of individuals tasked with the responsibility of overseeing the management and strategic direction of a company. They have important responsibilities like making big decisions about where the company is going and how it will work, making sure the company is successful and efficient, and hiring and checking on the senior leaders of the company.
They also make sure the company follows all the rules and acts in the best interests of everyone involved. Having a strong board of directors is very important for a company's long-term success because they give important guidance and help the company achieve its goals and mission. However, what is the purpose of having them?
Here 5 five reasons why:
1. Provide Accountability and Oversight: One of the fundamental responsibilities of the board of directors is to ensure that the company's management is accountable and that there is proper oversight in place. By regularly reviewing and approving the company's strategic plans, financial reports, and performance, the board ensures that the management team is acting in the best interests of the company and its shareholders.
For example, in 2020, the board of directors of Boeing faced scrutiny after two fatal crashes of its 737 Max planes. The board was responsible for overseeing the company's safety protocols and ensuring that the planes were safe for passengers. The board's failure to provide adequate oversight led to a loss of public trust and a drop in the company's stock price.
2. Bring Expertise and Experience: Another important function of a board of directors is to bring expertise and experience to the company. The board can provide valuable insights and guidance to the management team by hiring members with various backgrounds, skills, and viewpoints.
For instance, in 2021, Tesla's board of directors appointed James Murdoch, a media executive, as a new board member. Murdoch's experience in media and technology is expected to help Tesla as it expands into new markets and develops new products.
3. Set and Monitor Corporate Strategy: The board of directors also plays a key role in setting and monitoring the company's corporate strategy. By working closely with the management team, the board can help to identify opportunities for growth, assess potential risks, and ensure that the company is on track to achieve its goals.
In 2022, Apple's board of directors approved a new strategic plan that focuses on expanding the company's services business and increasing its investment in research and development. The board will monitor the company's progress against these goals and provide guidance to the management team as needed.
4. Ensure Compliance with Regulations and Laws: A variety of regulations and laws apply to public corporations, and the board of directors is responsible for ensuring that the company complies with them. By establishing policies and procedures and monitoring compliance, the board can help to prevent legal and financial risks.
For example, in 2021, Facebook's board of directors appointed a new member, Nancy Killefer, who has experience in government and regulatory compliance. Killefer is expected to help the company navigate the increasingly complex regulatory environment in which it operates.
5. Represent Shareholders' Interests: Finally, the board of directors represents the interests of the company's shareholders. By focusing on maximizing shareholder value, the board can help to recruit and keep investors while also ensuring the company's long-term prosperity.
In 2022, Exxon Mobil's board of directors faced pressure from shareholders to address concerns about the company's environmental impact and corporate governance practices. The board appointed two new members with experience in sustainable investing and shareholder activism to address these concerns and work to improve the company's performance.
Finally, the board of directors is important to the success of public firms. The board can help to ensure that the company is well-managed, compliant, and focused on long-term growth and shareholder value by offering supervision, knowledge, and leadership.
