Shareholders Agreement 101: The Roles and Responsibilities of the Board of Directors (Part 5 of 10)
By Joanne Hue, published: 2023-02-13
Within a company, the board of directors holds set responsibilities. They hold the authority to appoint the company’s CEO or general manager and are responsible for assessing the trajectory of the business. The board of directors is responsible for setting the overall company policy. They direct the management system within the company to adapt to the annual goals of the company. The CEO or the general manager appointed via the board of directors oversees the process of hiring and managing the employees in the company.
The chair or the president is the major office of the board followed by the vice chair or the vice president. These officeholders are selected from the board of directors. Likewise, the board of directors is selected via a voting process from the shareholders of the company. The officeholders are elected by the board of directors. The board also appoints the combined secretary or treasurer for the company. These positions are function-oriented. Therefore, they may not always belong to the board of directors and may be appointed to their positions due to their unique expertise or experience in a field. The selection process includes the board analysis of candidates’ qualifications. Each board formulates a tailored working process that suits the demands of the company and its shareholders.
Role of the board of directors
We can categorize the role of the board of directors into strategic direction, accountability, and governance. Governance is the primary role played by the board of directors. The framework that monitors and regulates the structure of the board of directors, its operation, and its decision-making procedures is the governance aspect of the roles concerning the board. It designs a system that allows the board to comprehend its specific responsibilities. It holds a macroscopic observation of relations between the company members and guides company management.
The Board informs the plans concerning the growth of the organization. Usually, it comprises individuals from a diverse range of industries that can assist the company in addressing detrimental circumstances. Strategic planning, carried out by the board encompasses both the short-term and the long-term goals of the company. The board holds legal obligations of bearing accountability for the company. Therefore, they must be careful in ensuring the fulfillment of ethical and legal standards that are required for the management of the company, its assets, and its resources.
Major responsibilities of the board of directors
The board of directors holds the following responsibilities in the company:
1) Responsibility to recruit, supervise and evaluate the general manager or the CEO.
Recruiting, supervising, and evaluating the CEO or general manager is one of the most significant functions of the board. Along with recruiting, the board also must compensate for and retain them. In the case of value-added businesses, they need to proactively select the most suitable individuals for these positions. The efficient performance of roles in these positions is crucial to the business’s success. Therefore, the board needs to take the appointment of these positions very earnestly. Likewise, the board of a value-added business should avoid under-compensating the manager of the business. A good managerial payoff provides incentives to the most fitting candidates to pursue the role. These individuals play a massive role in augmenting the probability of the business’s success.
2) Controlling and mentoring
The board has the charge of the auditing process. They are also responsible for hiring auditors. This ensures that the audit conducted annually is done in a timely and efficient manner.
3) Establishing a policy-based governance system.
The board of directors directs the organization’s function. The board has a strategic function in providing the vision, mission and goals of the organization. The board holds the responsibility to develop a policy-based system within the framework of articles of governance. These policies play an instrumental role in the company’s management. All the rules that the board creates for the company should be policy based. These policies also regulate the actions of the board itself. The board should be careful while drafting the policies to avoid restricting the manager or the board from achieving their own goals.
4) Supervise the relationship between the company and the CEO or the general manager.
Within the governance system of the board, the interaction between the general manager or CEO’s interaction with the board is vital to the company’s goal achievement. Another responsibility of the board is to develop a governance system. The board periodically interacts with the CEO during meetings. While some boards may hold meetings three to four times a month, a typical business holds a monthly meeting. However, the interaction ought to be carried out regularly through alternative mediums.
5) Fiduciary duty to protect the organization’s assets and members’ investment.
Fiduciary responsibility entails the obligations of a trustee to a beneficiary. Since the board is generally elected by the shareholders in the annual general meeting they should serve the best interests of the organization’s shareholders and its investors. Therefore they have a fiduciary responsibility to protect the investor’s benefits. To do so, they need to ensure that the assets of the company are protected and kept in order. These comprise the company’s, equipment, plant and other facilities like human resources.
The board of directors has a very important role within a company. Their primary responsibility is the selection of a suitable candidate for the position of Chief Executive Officer. They are responsible for the strategic development and governance of the company. Since the board holds legal accountability for the company and is mandated to serve the interests of its investors, it is central to the company’s success.
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