A board of directors is a recognized group of people who jointly
oversee the activities of an organization, which can be either a
for-profit business, nonprofit organization, or a government agency.
Such a board's powers, duties, and responsibilities are determined by
government regulations (including the jurisdiction's corporations law)
and the organization's own constitution and bylaws. 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 might be subordinate to, the organization's full membership, which
usually vote for the members of the board. In a stock corporation,
non-executive directors are voted for by the shareholders and the
board is the highest authority in the management of the corporation.
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; its members are sometimes chosen by the board
3.1 Inside director
3.2 Outside director
4 Process and structure
4.1 Board meetings
5 Non-corporate boards
5.1 Membership organizations
6.2 Two-tier system
6.4 Election and removal
6.5 Exercise of powers
6.6.1 "Proper purpose"
6.6.2 "Unfettered discretion"
6.6.3 "Conflict of duty and interest"
18.104.22.168 Transactions with the company
22.214.171.124 Use of corporate property, opportunity, or information
126.96.36.199 Competing with the company
Common law duties of care and skill
6.6.5 Remedies for breach of duty
6.6.6 Current trends
6.7 United States
6.7.1 Sarbanes–Oxley Act
7 See also
10 External links
Other names include board of directors and advisors, board of
governors, board of managers, board of regents, board of trustees, or
board of visitors. It may also be called "the executive board" and is
often simply referred to as "the board".
Management of a business
Limited liability company
Annual general meeting
Board of directors
International trade law
Mergers and acquisitions
Cash conversion cycle
Financial statement analysis
Types of management
Enterprise resource planning
management information system
Business judgment rule
Business and economics portal
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 legal responsibilities of boards and board members vary with the
nature of the organization, and between jurisdictions. For companies
with publicly trading stock, these responsibilities are typically much
more rigorous and complex than for those of other types.
Typically, the board chooses one of its members to be the chairman
(more usually now called the "chair" or "chairperson"), who holds
whatever title is specified in the bylaws or articles of association.
However, in membership organizations, the members elect the president
of the organization and the president becomes the chair of the board,
unless the bylaws say otherwise.
The directors of an organization are the persons who are members of
its board. Several specific terms categorize directors by the presence
or absence of their other relationships to the organization.
An inside director is a director who is also an employee, officer,
chief executive, major shareholder, or someone similarly connected to
the organization. Inside directors represent the interests of the
entity's stakeholders, and often have special knowledge of its inner
workings, its financial or market position, and so on.
Typical inside directors are:
A chief executive officer (CEO) who may also be chairman of the board
Other executives of the organization, such as its chief financial
officer (CFO) or executive vice president
Large shareholders (who may or may not also be employees or officers)
Representatives of other stakeholders such as labor unions, major
lenders, or members of the community in which the organization is
An inside director who is employed as a manager or executive of the
organization is sometimes referred to as an executive director (not to
be confused with the title executive director sometimes used for the
CEO position in some organizations). Executive directors often have a
specified area of responsibility in the organization, such as finance,
marketing, human resources, or production.
Main article: Independent director
An outside director is a member of the board who is not otherwise
employed by or engaged with the organization, and does not represent
any of its stakeholders. A typical example is a director who is
president of a firm in a different industry. Outside directors are
not employees of the company or affiliated with it in any other way.
Outside directors bring outside experience and perspectives to the
board. For example, for a company that only serves a domestic market,
the presence of CEOs from global multinational corporations as outside
directors can help to provide insights on export and import
opportunities and international trade options. One of the arguments
for having outside directors is that they can keep a watchful eye on
the inside directors and on the way the organization is run. Outside
directors are unlikely to tolerate "insider dealing" between insider
directors, as outside directors do not benefit from the company or
organization. Outside directors are often useful in handling disputes
between inside directors, or between shareholders and the board. They
are thought to be advantageous because they can be objective and
present little risk of conflict of interest. On the other hand, they
might lack familiarity with the specific issues connected to the
organization's governance and they might not know about the industry
or sector in which the organization is operating.
Director – a person appointed to serve on the board of an
organization, such as an institution or business.
Inside director – a director who, in addition to serving on the
board, has a meaningful connection to the organization
Outside director – a director who, other than serving on the board,
has no meaningful connections to the organization
Executive director – an inside director who is also an executive
with the organization. The term is also used, in a completely
different sense, to refer to a CEO
Non-executive director – an inside director who is not an executive
with the organization
Shadow or de facto director – an individual who is not a named
director but who nevertheless directs or controls the organization
Nominee director – an individual who is appointed by a shareholder,
creditor or interest group (whether contractually or by resolution at
a company meeting) and who has a continuing loyalty to the appointor/s
or other interest in the appointing company
Individual directors often serve on more than one board. This
practice results in an interlocking directorate, where a relatively
small number of individuals have significant influence over a large
number of important entities. This situation can have important
corporate, social, economic, and legal consequences, and has been the
subject of significant research.
Process and structure
The process for running a board, sometimes called the board process,
includes the selection of board members, the setting of clear board
objectives, the dissemination of documents or board package to the
board members, the collaborative creation of an agenda for the
meeting, the creation and follow-up of assigned action items, and the
assessment of the board process through standardized assessments of
board members, owners, and CEOs. The science of this process has
been slow to develop due to the secretive nature of the way most
companies run their boards, however some standardization is beginning
to develop. Some who are pushing for this standardization in the USA
are the National Association of Corporate Directors, McKinsey
Consulting and The Board Group.
A board of directors conducts its meetings according to the rules and
procedures contained in its governing documents. These procedures may
allow the board to conduct its business by conference call or other
electronic means. They may also specify how a quorum is to be
Most organizations have adopted
Robert's Rules of Order
Robert's Rules of Order as its guide
to supplement its own rules[where?]. In this book, the rules for
conducting board meetings may be less formal if there is no more than
about a dozen board members present. An example of the informality
is that motions are not required if it's clear what is being
Historically, nonprofit boards have not uncommonly had large boards
with up to twenty-four members, but a modern trend is to have smaller
boards as small as six or seven people. Studies suggest that after
seven people, each additional person reduces the effectiveness of
The role and responsibilities of a board of directors vary depending
on the nature and type of business entity and the laws applying to the
entity (see types of business entity). For example, the nature of the
business entity may be one that is traded on a public market (public
company), not traded on a public market (a private, limited or closely
held company), owned by family members (a family business), or exempt
from income taxes (a non-profit, not for profit, or tax-exempt
entity). There are numerous types of business entities available
throughout the world such as a corporation, limited liability company,
cooperative, business trust, partnership, private limited company, and
public limited company.
Much of what has been written about boards of directors relates to
boards of directors of business entities actively traded on public
markets. More recently, however, material is becoming available
for boards of private and closely held businesses including family
A board-only organization is one whose board is self-appointed, rather
than being accountable to a base of members through elections; or in
which the powers of the membership are extremely limited.[citation
In membership organizations, such as a society made up of members of a
certain profession or one advocating a certain cause, a board of
directors may have the responsibility of running the organization in
between meetings of the membership, especially if the membership meets
infrequently, such as only at an annual general meeting. The
amount of powers and authority delegated to the board depend on the
bylaws and rules of the particular organization. Some organizations
place matters exclusively in the board's control while in others, the
general membership retains full power and the board can only make
The setup of a board of directors vary widely across organizations and
may include provisions that are applicable to corporations, in which
the "shareholders" are the members of the organization. A difference
may be that the membership elects the officers of the organization,
such as the president and the secretary, and the officers become
members of the board in addition to the directors and retain those
duties on the board. The directors may also be classified as
officers in this situation. There may also be ex-officio members
of the board, or persons who are members due to another position that
they hold. These ex-officio members have all the same rights as the
other board members.
Members of the board may be removed before their term is complete.
Details on how they can be removed are usually provided in the bylaws.
If the bylaws do not contain such details, the section on disciplinary
Robert's Rules of Order
Robert's Rules of Order may be used.
In a publicly held company, directors are elected to represent and are
legally obligated as fiduciaries to represent owners of the
company—the shareholders/stockholders. In this capacity they
establish policies and make decisions on issues such as whether there
is dividend and how much it is, stock options distributed to
employees, and the hiring/firing and compensation of upper management.
Theoretically, the control of a company is divided between two bodies:
the board of directors, and the shareholders in general meeting. In
practice, the amount of power exercised by the board varies with the
type of company. In small private companies, the directors and the
shareholders are normally the same people, and thus there is no real
division of power. In large public companies, the board tends to
exercise more of a supervisory role, and individual responsibility and
management tends to be delegated downward to individual professional
executives (such as a finance director or a marketing director) who
deal with particular areas of the company's affairs.
Another feature of boards of directors in large public companies is
that the board tends to have more de facto power. Many shareholders
grant proxies to the directors to vote their shares at general
meetings and accept all recommendations of the board rather than try
to get involved in management, since each shareholder's power, as well
as interest and information is so small. Larger institutional
investors also grant the board proxies. The large number of
shareholders also makes it hard for them to organize. However, there
have been moves recently to try to increase shareholder activism among
both institutional investors and individuals with small
A contrasting view is that in large public companies it is upper
management and not boards that wield practical power, because boards
delegate nearly all of their power to the top executive employees,
adopting their recommendations almost without fail. As a practical
matter, executives even choose the directors, with shareholders
normally following management recommendations and voting for them.
In most cases, serving on a board is not a career unto itself. For
major corporations, the board members are usually professionals or
leaders in their field. In the case of outside directors, they are
often senior leaders of other organizations. Nevertheless, board
members often receive remunerations amounting to hundreds of thousands
of dollars per year since they often sit on the boards of several
companies. Inside directors are usually not paid for sitting on a
board, but the duty is instead considered part of their larger job
description. Outside directors are usually paid for their services.
These remunerations vary between corporations, but usually consist of
a yearly or monthly salary, additional compensation for each meeting
attended, stock options, and various other benefits. such as travel,
hotel and meal expenses for the board meetings. Tiffany & Co., for
example, pays directors an annual retainer of $46,500, an additional
annual retainer of $2,500 if the director is also a chairperson of a
committee, a per-meeting-attended fee of $2,000 for meetings attended
in person, a $500 fee for each meeting attended via telephone, in
addition to stock options and retirement benefits.
In some European and Asian countries, there are two separate boards,
an executive board for day-to-day business and a supervisory board
(elected by the shareholders and employees) for supervising the
executive board. In these countries, the CEO (chief executive or
managing director) presides over the executive board and the chairman
presides over the supervisory board, and these two roles will always
be held by different people. This ensures a distinction between
management by the executive board and governance by the supervisory
board and allows for clear lines of authority. The aim is to prevent a
conflict of interest and too much power being concentrated in the
hands of one person. There is a strong parallel here with the
structure of government, which tends to separate the political cabinet
from the management civil service. In the United States, the board of
directors (elected by the shareholders) is often equivalent to the
supervisory board, while the executive board may often be known as the
executive committee (operating committee or executive council),
composed of the CEO and their direct reports (other C-level officers,
The meeting room of the Heren XVII (nl), the Dutch East India
Company's board of directors, in the
Oost-Indisch Huis (Amsterdam).
Dutch East India Company
Dutch East India Company (VOC) is often considered by many to be
an early pioneering model of the modern corporation.
In 1610, the company established its administrative center (the VOC's
second headquarters) in Batavia with a Governor-General in charge, as
the company's de facto chief executive.
The examples and perspective in this section deal primarily with the
United Kingdom and do not represent a worldwide view of the subject.
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The development of a separate board of directors to
manage/govern/oversee a company has occurred incrementally and
indefinitely over legal history. Until the end of the 19th century, it
seems to have been generally assumed that the general meeting (of all
shareholders) was the supreme organ of a company, and that the board
of directors merely acted as an agent of the company subject to the
control of the shareholders in general meeting.
However, by 1906, the English Court of Appeal had made it clear in the
decision of Automatic Self-Cleansing Filter Syndicate Co Ltd v
Cuninghame  2 Ch 34 that the division of powers between the
board and the shareholders in general meaning depended on the
construction of the articles of association and that, where the powers
of management were vested in the board, the general meeting could not
interfere with their lawful exercise. The articles were held to
constitute a contract by which the members had agreed that "the
directors and the directors alone shall manage."
The new approach did not secure immediate approval, but it was
endorsed by the House of Lords in Quin & Axtens v Salmon  AC
442 and has since received general acceptance. Under English law,
successive versions of
Table A have reinforced the norm that, unless
the directors are acting contrary to the law or the provisions of the
Articles, the powers of conducting the management and affairs of the
company are vested in them.
The modern doctrine was expressed in John Shaw & Sons (Salford)
Ltd v Shaw  2 KB 113 by Greer LJ as follows:
A company is an entity distinct alike from its shareholders and its
directors. Some of its powers may, according to its articles, be
exercised by directors, certain other powers may be reserved for the
shareholders in general meeting. If powers of management are vested in
the directors, they and they alone can exercise these powers. The only
way in which the general body of shareholders can control the exercise
of powers by the articles in the directors is by altering the
articles, or, if opportunity arises under the articles, by refusing to
re-elect the directors of whose actions they disapprove. They cannot
themselves usurp the powers which by the articles are vested in the
directors any more than the directors can usurp the powers vested by
the articles in the general body of shareholders.
It has been remarked[by whom?] that this development in the law was
somewhat surprising at the time, as the relevant provisions in Table A
(as it was then) seemed to contradict this approach rather than to
Election and removal
In most legal systems, the appointment and removal of directors is
voted upon by the shareholders in general meeting[a] or through a
proxy statement. For publicly traded companies in the U.S., the
directors which are available to vote on are largely selected by
either the board as a whole or a nominating committee. Although in
New York Stock Exchange
New York Stock Exchange and the
NASDAQ required that
nominating committees consist of independent directors as a condition
of listing, nomination committees have historically received input
from management in their selections even when the CEO does not have a
position on the board.
Shareholder nominations can only occur at
the general meeting itself or through the prohibitively expensive
process of mailing out ballots separately; in May 2009 the SEC
proposed a new rule allowing shareholders meeting certain criteria to
add nominees to the proxy statement. In practice for publicly
traded companies, the managers (inside directors) who are purportedly
accountable to the board of directors have historically played a major
role in selecting and nominating the directors who are voted on by the
shareholders, in which case more "gray outsider directors"
(independent directors with conflicts of interest) are nominated and
Directors may also leave office by resignation or death. In some legal
systems, directors may also be removed by a resolution of the
remaining directors (in some countries they may only do so "with
cause"; in others the power is unrestricted).
Some jurisdictions also permit the board of directors to appoint
directors, either to fill a vacancy which arises on resignation or
death, or as an addition to the existing directors.(needs citation)
In practice, it can be quite difficult to remove a director by a
resolution in general meeting. In many legal systems, the director has
a right to receive special notice of any resolution to remove him or
her;[b] the company must often supply a copy of the proposal to the
director, who is usually entitled to be heard by the meeting.[c] The
director may require the company to circulate any representations that
he wishes to make.[d] Furthermore, the director's contract of service
will usually entitle him to compensation if he is removed, and may
often include a generous "golden parachute" which also acts as a
deterrent to removal.
A recent study examines how corporate shareholders voted in director
elections in the United States. It found that directors received
fewer votes from shareholders when their companies performed poorly,
had excess CEO compensation, or had poor shareholder protection. Also,
directors received fewer votes when they did not regularly attend
board meetings or received negative recommendations from a proxy
advisory firm. The study also shows that companies often improve their
corporate governance by removing poison pills or classified boards and
by reducing excessive CEO pay after their directors receive low
Board accountability to shareholders is a recurring issue. In 2010,
the New York Times noted that several directors who had overseen
companies which had failed in the financial crisis of 2007–2010 had
found new positions as directors. The SEC sometimes imposes a ban
(a "D&O bar") on serving on a board as part of its fraud cases,
and one of these was upheld in 2013.
Exercise of powers
The exercise by the board of directors of its powers usually occurs in
board meetings. Most legal systems require sufficient notice to be
given to all directors of these meetings, and that a quorum must be
present before any business may be conducted. Usually, a meeting which
is held without notice having been given is still valid if all of the
directors attend, but it has been held that a failure to give notice
may negate resolutions passed at a meeting, because the persuasive
oratory of a minority of directors might have persuaded the majority
to change their minds and vote otherwise.
In most common law countries, the powers of the board are vested in
the board as a whole, and not in the individual directors.
However, in instances an individual director may still bind the
company by his acts by virtue of his ostensible authority (see also:
the rule in Turquand's Case).
Directors' duties and
Because directors exercise control and management over the
organization, but organizations are (in theory) run for the benefit of
the shareholders, the law imposes strict duties on directors in
relation to the exercise of their duties. The duties imposed on
directors are fiduciary duties, similar to those that the law imposes
on those in similar positions of trust: agents and trustees.
The duties apply to each director separately, while the powers apply
to the board jointly. Also, the duties are owed to the company itself,
and not to any other entity. This does not mean that directors can
never stand in a fiduciary relationship to the individual
shareholders; they may well have such a duty in certain
Directors must exercise their powers for a proper purpose. While in
many instances an improper purpose is readily evident, such as a
director looking to feather his or her own nest or divert an
investment opportunity to a relative, such breaches usually involve a
breach of the director's duty to act in good faith. Greater
difficulties arise where the director, while acting in good faith, is
serving a purpose that is not regarded by the law as proper.
The seminal authority in relation to what amounts to a proper purpose
is the Supreme Court decision in Eclairs Group Ltd v JKX Oil & Gas
plc  UKSC 71 (2 December 2015). The case concerned the powers of
directors under the articles of association of the company to
disenfranchise voting rights attached to shares for failure to
properly comply with notice served on the shareholders. Prior to that
case the leading authority was
Howard Smith Ltd v Ampol Ltd
Howard Smith Ltd v Ampol Ltd  AC
821. The case concerned the power of the directors to issue new
shares. It was alleged that the directors had issued a large
number of new shares purely to deprive a particular shareholder of his
voting majority. An argument that the power to issue shares could only
be properly exercised to raise new capital was rejected as too narrow,
and it was held that it would be a proper exercise of the director's
powers to issue shares to a larger company to ensure the financial
stability of the company, or as part of an agreement to exploit
mineral rights owned by the company. If so, the mere fact that an
incidental result (even if it was a desired consequence) was that a
shareholder lost his majority, or a takeover bid was defeated, this
would not itself make the share issue improper. But if the sole
purpose was to destroy a voting majority, or block a takeover bid,
that would be an improper purpose.
Not all jurisdictions recognised the "proper purpose" duty as separate
from the "good faith" duty however.[e]
Directors cannot, without the consent of the company, fetter their
discretion in relation to the exercise of their powers, and cannot
bind themselves to vote in a particular way at future board
meetings.[f] This is so even if there is no improper motive or
purpose, and no personal advantage to the director.
This does not mean, however, that the board cannot agree to the
company entering into a contract which binds the company to a certain
course, even if certain actions in that course will require further
board approval. The company remains bound, but the directors retain
the discretion to vote against taking the future actions (although
that may involve a breach by the company of the contract that the
board previously approved).
"Conflict of duty and interest"
As fiduciaries, the directors may not put themselves in a position
where their interests and duties conflict with the duties that they
owe to the company. The law takes the view that good faith must not
only be done, but must be manifestly seen to be done, and zealously
patrols the conduct of directors in this regard; and will not allow
directors to escape liability by asserting that his decision was in
fact well founded. Traditionally, the law has divided conflicts of
duty and interest into three sub-categories.
Transactions with the company
By definition, where a director enters into a transaction with a
company, there is a conflict between the director's interest (to do
well for himself out of the transaction) and his duty to the company
(to ensure that the company gets as much as it can out of the
transaction). This rule is so strictly enforced that, even where the
conflict of interest or conflict of duty is purely hypothetical, the
directors can be forced to disgorge all personal gains arising from
it. In Aberdeen Ry v Blaikie (1854) 1 Macq HL 461 Lord Cranworth
stated in his judgment that:
"A corporate body can only act by agents, and it is, of course, the
duty of those agents so to act as best to promote the interests of the
corporation whose affairs they are conducting. Such agents have duties
to discharge of a fiduciary nature towards their principal. And it is
a rule of universal application that no one, having such duties to
discharge, shall be allowed to enter into engagements in which he has,
or can have, a personal interest conflicting or which possibly may
conflict, with the interests of those whom he is bound to protect...
So strictly is this principle adhered to that no question is allowed
to be raised as to the fairness or unfairness of the contract entered
into..." (emphasis added)
However, in many jurisdictions the members of the company are
permitted to ratify transactions which would otherwise fall foul of
this principle. It is also largely accepted in most jurisdictions that
this principle can be overridden in the company's constitution.
In many countries, there is also a statutory duty to declare interests
in relation to any transactions, and the director can be fined for
failing to make disclosure.[g]
Use of corporate property, opportunity, or information
Directors must not, without the informed consent of the company, use
for their own profit the company's assets, opportunities, or
information. This prohibition is much less flexible than the
prohibition against the transactions with the company, and attempts to
circumvent it using provisions in the articles have met with limited
In Regal (Hastings) Ltd v Gulliver  All ER 378 the House of
Lords, in upholding what was regarded as a wholly unmeritorious claim
by the shareholders,[h] held that:
"(i) that what the directors did was so related to the affairs of the
company that it can properly be said to have been done in the course
of their management and in the utilisation of their opportunities and
special knowledge as directors; and (ii) that what they did resulted
in profit to themselves."
And accordingly, the directors were required to disgorge the profits
that they made, and the shareholders received their windfall.
The decision has been followed in several subsequent cases, and is
now regarded as settled law.
Competing with the company
Directors cannot compete directly with the company without a conflict
of interest arising. Similarly, they should not act as directors of
competing companies, as their duties to each company would then
conflict with each other.
Common law duties of care and skill
Traditionally, the level of care and skill which has to be
demonstrated by a director has been framed largely with reference to
the non-executive director. In Re City Equitable Fire
 Ch 407, it was expressed in purely subjective terms, where the
court held that:
"a director need not exhibit in the performance of his duties a
greater degree of skill than may reasonably be expected from a person
of his knowledge and experience." (emphasis added)
However, this decision was based firmly in the older notions (see
above) that prevailed at the time as to the mode of corporate decision
making, and effective control residing in the shareholders; if they
elected and put up with an incompetent decision maker, they should not
have recourse to complain.
However, a more modern approach has since developed, and in Dorchester
Finance Co Ltd v Stebbing  BCLC 498 the court held that the rule
in Equitable Fire related only to skill, and not to diligence. With
respect to diligence, what was required was:
"such care as an ordinary man might be expected to take on his own
This was a dual subjective and objective test, and one deliberately
pitched at a higher level.
More recently, it has been suggested that both the tests of skill and
diligence should be assessed objectively and subjectively; in the
United Kingdom, the statutory provisions relating to directors' duties
in the new
Companies Act 2006
Companies Act 2006 have been codified on this basis.
Remedies for breach of duty
In most jurisdictions, the law provides for a variety of remedies in
the event of a breach by the directors of their duties:
injunction or declaration
damages or compensation
restoration of the company's property
rescission of the relevant contract
account of profits
Historically, directors' duties have been owed almost exclusively to
the company and its members, and the board was expected to exercise
its powers for the financial benefit of the company. However, more
recently there have been attempts to "soften" the position, and
provide for more scope for directors to act as good corporate
citizens. For example, in the United Kingdom, the Companies Act 2006
requires directors of companies "to promote the success of the company
for the benefit of its members as a whole" and sets out the following
six factors regarding a director's duty to promote success:
the likely consequences of any decision in the long term
the interests of the company's employees
the need to foster the company's business relationships with
suppliers, customers and others
the impact of the company's operations on the community and the
the desirability of the company maintaining a reputation for high
standards of business conduct, and
the need to act fairly as between members of a company
This represents a considerable departure from the traditional notion
that directors' duties are owed only to the company. Previously in the
United Kingdom, under the Companies Act 1985, protections for
non-member stakeholders were considerably more limited (see for
example, s.309 which permitted directors to take into account the
interests of employees but which could only be enforced by the
shareholders and not by the employees themselves). The changes have
therefore been the subject of some criticism.
Sarbanes–Oxley Act of 2002 has introduced new standards of
accountability on boards of U.S. companies or companies listed on U.S.
stock exchanges. Under the Act, directors risk large fines and prison
sentences in the case of accounting crimes.
Internal control is now
the direct responsibility of directors. The vast majority of companies
covered by the Act have hired internal auditors to ensure that the
company adheres to required standards of internal control. The
internal auditors are required by law to report directly to an audit
board, consisting of directors more than half of whom are outside
directors, one of whom is a "financial expert."
The law requires companies listed on the major stock exchanges (NYSE,
NASDAQ) to have a majority of independent directors—directors who
are not otherwise employed by the firm or in a business relationship
According to the Corporate Library's study, the average size of
publicly traded company's board is 9.2 members, and most boards range
from 3 to 31 members. According to Investopedia, some analysts think
the ideal size is seven. State law may specify a minimum number of
directors, maximum number of directors, and qualifications for
directors (e.g. whether board members must be individuals or may be
While a board may have several committees, two—the compensation
committee and audit committee—are critical and must be made up of at
least three independent directors and no inside directors. Other
common committees in boards are nominating and governance.
Fortune 500 companies received median pay of $234,000 in
2011. Directorship is a part-time job. A recent National Association
of Corporate Directors study found directors averaging just 4.3 hours
a week on board work. Surveys indicate that about 20% of nonprofit
foundations pay their board members, and 2% of American nonprofit
organizations do. 80% of nonprofit organizations require board
members to personally contribute to the organization, as
BoardSource recommends. This percentage has increased in recent
According to John Gillespie, a former investment banker and co-author
of a book critical of boards, "Far too much of their time has been
for check-the-box and cover-your-behind activities rather than real
monitoring of executives and providing strategic advice on behalf of
shareholders". At the same time, scholars have found that
individual directors have a large effect on major corporate
initiatives such as mergers and acquisitions and cross-border
The issue of gender representation on corporate boards of directors
has been the subject of much criticism in recent years. Governments
and corporations have responded with measures such as legislation
mandating gender quotas and comply or explain systems to address the
disproportionality of gender representation on corporate boards. A
study of the French corporate elite has found that certain social
classes are also disproportionately represented on boards, with those
from the upper and, especially, upper-middle classes tending to
Celebrity board director
Chief executive officer
Gender representation on corporate boards of directors
Governing boards of colleges and universities in the United States
Parliamentary procedure in the corporate world
President (corporate title)
Supervisory board (in German: "Aufsichtsrat")
Vorstand, German for "management board"
^ For example, in the United Kingdom, see section 303 of the Companies
^ In the United Kingdom it is 28 days' notice, see sections 303(2) and
379 of the Companies Act 1985.
^ In the United Kingdom, see section 304(1) of the Companies Act 1985.
A private company cannot use a written resolution under section 381A
– a meeting must be held.
^ In the United Kingdom, see sections 303(2) and (3) of the Companies
^ This division was rejected in British Columbia in Teck
Millar (1972) 33 DLR (3d) 288.
^ Although as Gower points out, as well understood as the rule is,
there is a paucity of authority on the point. But see Clark v Workman
 1 Ir R 107 and Dawson International plc v Coats Paton plc 1989
^ In the United Kingdom, see section 317 of the Companies Act 1985.
^ In summary, the facts were as follows: Company A owned a cinema, and
the directors decided to acquire two other cinemas with a view to
selling the entire undertaking as a going concern. They formed a new
company ("Company B") to take the leases of the two new cinemas. But
the lessor insisted on various stipulations, one of which was that
Company B had to have a paid up share capital of not less than £5,000
(a substantial sum at the time). Company A was unable to subscribe for
more than £2,000 in shares, so the directors arranged for the
remaining 3,000 shares to be taken by themselves and their friends.
Later, instead of selling the undertaking, they sold all of the shares
in both companies and made a substantial profit. The shareholders of
Company A sued asking that directors and their friends to disgorge the
profits that they had made in connection with their 3,000 shares in
Company B – the very same shares which the shareholders in Company A
had been asked to subscribe (through Company A) but refused to do so.
^ Robert 2011, p. 9.
^ "How are the directors selected?". Commonwealth of Virginia, State
Business FAQs. Retrieved 2011-04-08.
^ "Chapter 181, Nonstock Corporations (Sect. 181.0804)" (PDF).
Wisconsin Statutes Database. Retrieved 2011-04-08.
^ a b Robert 2011, p. 481-483.
^ McNamara, Carter. "Overview of Roles and Responsibilities of
Corporate Board of Directors". Free
Management Library. Authenticity
Consulting, LLC. Retrieved 2008-01-26.
^ "Basic Role of the Board".
Governance Basics. Institute on
Governance (Canada). Archived from the original on 30 December 2007.
^ a b Robert 2011, p. 484.
^ This section was developed from numerous definitions in USLegal.com,
BusinessDictionary.com, Dictionary.com, The Free Dictionary by Farlex
("inside director"; "executive director"; "outside director";
"nonexecutive director"), Macmillan Dictionary, and
Economics-dictionary.com[permanent dead link].
^ "Executive Director". Investopedia. Retrieved 24 May 2013.
^ "Outside Director". Investopedia. Retrieved 24 May 2013.
^ "Executive Director".
Business Dictionary. Retrieved 24 May
^ Board Process Archived 20 February 2009 at the Wayback Machine.
^ a b "Frequently Asked Questions about RONR (Question 19)". The
Robert's Rules of Order
Robert's Rules of Order Web Site. The Robert's Rules
Association. Archived from the original on 26 July 2017. Retrieved 24
^ "National Association of Parliamentarians >> FAQ". . . . the
11th edition of
Robert's Rules of Order
Robert's Rules of Order Newly Revised is the current
edition of the most widely used reference for meeting procedure and
business rules in the English-speaking world.
^ Robert 2011, p. 9-10,487-488.
^ Robert III, Henry M.; et al. (2011).
Robert's Rules of Order
Robert's Rules of Order Newly
Revised In Brief (2nd ed.). Philadelphia, PA: Da Capo Press.
p. 158. ISBN 978-0-306-82019-9.
^ a b White, Cyrus. "For Nonprofit Boards, Smaller is Better".
perma.cc. The South Cabin Group LLC. Retrieved 2016-08-08.
^ See generally, Bowen, William G., The board book: an insider's guide
for directors and trustees (2008 W.W. Norton & Co.); Murray, Alan
S., Revolt in the boardroom: the new rules of power in corporate
America (2007 Collins); Charan, Ram, Boards that deliver: advancing
corporate governance from compliance to competitive advantage (2005
Jossey-Bass); Carver, John, Corporate boards that create value:
governing company performance from the boardroom (2002 Jossey-Bass);
Harvard business review on corporate governance (2000 Harvard Business
^ See specifically Tutelman and Hause, The Balance Point: New Ways
Business Owners Can Use Boards (2008 Famille Press).
^ Robert 2011, p. 481–483.
^ Robert 2011, p. 572.
^ "Frequently Asked Questions about RONR (Question 2)". The Official
Robert's Rules of Order
Robert's Rules of Order Web Site. The Robert's Rules Association.
Archived from the original on 26 July 2017. Retrieved 24 December
^ "Frequently Asked Questions about RONR (Question 20)". The Official
Robert's Rules of Order
Robert's Rules of Order Web Site. The Robert's Rules Association.
Archived from the original on 26 July 2017. Retrieved 24 December
^ a b Titles Associated with Executive Compensation Archived 17
September 2012 at the Wayback Machine. Compensation Resources Inc.
^ Fees, CEO Evaluation, and Ownership Structure By Joshua Kennon,
^ Steensgaard, Niels (1982). “The
Dutch East India Company
Dutch East India Company as an
Institutional Innovation”, in Maurice Aymard (ed.), Dutch Capitalism
and World Capitalism / Capitalisme hollandais et capitalisme mondial
(Studies in Modern Capitalism / Etudes sur le capitalisme moderne),
^ Jonker, Joost; Gelderblom, Oscar; de Jong, Abe (2013). The Formative
Years of the Modern Corporation: The
Dutch East India Company
Dutch East India Company VOC,
1602–1623. (The Journal of Economic History / Volume 73 / Issue 04 /
December 2013, pp. 1050–1076)
^ Von Nordenflycht, Andrew: The Great Expropriation: Interpreting the
Innovation of “Permanent Capital” at the Dutch East India Company,
in Origins of
Shareholder Advocacy, edited by Jonathan GS Koppell
(Palgrave Macmillan, 2011), pp. 89–98
^ Taylor, Bryan (6 November 2013). "The Rise and Fall of the Largest
Corporation in History". BusinessInsider.com. Retrieved 13 March
^ Gower, Principles of Company Law (6th ed.), citing Isle of Wight Rly
Co v Tahourdin (1884) LR 25 Ch D 320
^ Per Cozens-Hardy LJ at 44
^ See Gower, Principles of Company Law (6th ed.) at 185.
^ a b c Shivdasani A, Yermack D. (1999). CEO involvement in the
selection of new board members: An empirical analysis. Journal of
^ Chhaochharia V, Grinstein Y. (2007).
Corporate governance and firm
value: The impact of the 2002 governance rules Archived 11 June 2010
at the Wayback Machine.. The Journal of Finance.
^ SEC. (May 2009). SEC Votes to Propose Rule Amendments to Facilitate
Rights of Shareholders to Nominate Directors.
^ Cai, Jay; Garner, Jacqueline; Walkling, Ralph (2010). "Shareholder
Access to the Boardroom: A Survey of Recent Evidence". Journal of
Applied Finance. 20 (2): 15–26.
^ Cai, J.; Garner, J. L.; Walkling, R. A. (2009). "Electing
Directors". Journal of Finance. 64 (5): 2387–2419.
^ Craig S, Lattman P. (2010). Companies May Fail, but Directors Are in
Demand. New York Times.
^ SEC Wins D&O Bar Against Alleged Hedge Fund Scammer. Law360.
^ See for example Barber's Case (1877) 5 Ch D 963 and Re Portuguese
Consolidated Copper Mines (1889) 42 Ch D 160
Breckland Group Holdings Ltd v London and Suffolk Properties
Breckland Group Holdings Ltd v London and Suffolk Properties 
^ Percival v Wright  Ch 421
^ For example, if the board is authorised by the shareholders to
negotiate with a takeover bidder. It has been held in New Zealand that
"depending upon all the surround circumstances and the nature of the
responsibility which in a real and practical sense the director has
assumed towards the shareholder," Coleman v Myers  2 NZLR 225
Hogg v Cramphorn Ltd  Ch 254
Corporation v Millar (1972) 33 DLR (3d) 288
^ Industrial Development Consultants v Cooley  1 WLR 443
Canadian Aero Service v. O'Malley
Canadian Aero Service v. O'Malley (1973) 40
DLR (3d) 371 (corporate opportunity) and Boardman v Phipps  2 AC
46 (corporate opportunity, which again, the company itself had
declined to take up)
^ Norman v
Theodore Goddard  BCLC 1027
^ Director's duties
^ a b "Evaluating The Board Of Directors". investopedia.com. 29
^ "U.S. Corporate
Governance by State". harborcompliance.com. 22 April
^ "U.S. Nonprofit
Governance by State". harborcompliance.com. 27
^ Compensation Committee Structure, Function and Best Practices
Richard E. Wood
^ a b "Company directors see pay skyrocket". USA Today. 26 October
^ Schambra, William A. (Winter 2008). "Board Compensation: To Pay or
Not to Pay?". Philanthropy magazine. Philanthropy Roundtable.
Retrieved 2 May 2017.
BoardSource 2015, p. 52.
Internal Revenue Service
Internal Revenue Service (4 February 2008),
Related Topics - 501(c)(3) Organizations (PDF), Washington, DC:
Author, Charities should generally not compensate persons for service
on the board of directors except to reimburse direct expenses of such
service. ... Charities may pay reasonable compensation for services
provided by officers and staff.
BoardSource 2015, p. 31.
BoardSource (12 October 2016), Recommended governance practices
(PDF), Washington, DC: Author, p. 4, retrieved 2 May 2017
Grant Thornton (7 November 2007), National Board
for Not-for-Profit Organizations 2007 (PDF), Chicago, IL: Author,
p. 9, archived from the original (PDF) on 17 November 2008,
retrieved 2 May 2017
^ Cf. http://leadingwithintent.org/past-reports/
BoardSource (17 November 2010),
BoardSource nonprofit governance
index 2010 (PDF), Washington, DC: Author, p. 12
^ Money for Nothing: How the Failure of Corporate Boards is Ruining
Business and Costing Us Trillions
^ Rousseau, Peter; Stroup, Caleb (2015). "Director Histories and the
Pattern of Acquisitions". Journal of Financial and Quantitative
Analysis. 50 (04): 671–698. doi:10.1017/s0022109015000289.
^ Stroup, Caleb (November 28, 2015). "International Deal Experience
and Cross-Border Acquisitions". Economic Inquiry.
doi:10.1111/ecin.12365. SSRN 2037512 .
^ Senden, Linda (December 2014). "The Multiplicity of Regulatory
Responses to Remedy the Gender Imbalance on Company Boards". Utrecht
Law Review. 10 (5): 51–66. doi:10.18352/ulr.300.
^ Maclean, Mairi; Harvey, Charles; Kling, Gerhard (2014-06-01).
"Pathways to Power: Class, Hyper-Agency and the French Corporate
Organization Studies. 35 (6): 825–855.
doi:10.1177/0170840613509919. ISSN 0170-8406.
P. Blumberg, 'Reflections on Proposals for Corporate Reform Through
Change in the Composition of the Board of Directors: "Special
Interest" or "Public" Directors' (1973) 53 Boston University Law
BoardSource (January 2015), Leading with intent: A national index of
nonprofit board practices (PDF), Washington, DC: Author, retrieved 2
KJ Hopt, 'The German Two-Tier Board: Experience, Theories, Reforms' in
KJ Hopt and others. (eds), Comparative Corporate Governance: The State
of the Art and Emerging Research (Clarendon 1998)
KJ Hopt and PC Leyens, 'Board Models in Europe – Recent Developments
of Internal Corporate
Governance Structures in Germany, the United
Kingdom, France, and Italy' (2004) EGCI Working Paper
Robert, Henry M.; et al. (2011).
Robert's Rules of Order
Robert's Rules of Order Newly Revised
(11th ed.). Philadelphia, PA: Da Capo Press.
ISBN 978-0-306-82020-5. Archived from the original on 26 July
Web site of the Board of a large U.S. university, illustrating a
typical board's composition, duties, concerns, etc.
Guidance on director's duties (Lemon & Co)
National Association of Corporate Directors
European Directors and Board Members Association
Governance Board Leadership Training, Global Corporate
BoardofDirectors.com.au - Australia's leading Online Directorship
Chief managing director
Board of directors