What Is a Board of Directors?

The Board of Directors is an important internal corporate body responsible for the stability and scaling of the business. To correctly form such a structure, it is necessary to clearly understand its functions. It is also important to distinguish between the features of creating a body in companies of different types.

What Does the Board of Directors Mean?

The Board of Directors is a governing body elected for a fixed term by the meeting of shareholders. It manages the activities of the joint-stock company during the period between the annual meetings of shareholders following its competence, granted to the board of directors by law and by the charter.

Functions of the Board of Directors

The main functions of the board of directors are as follows:

    • creating a development strategy for a joint-stock company;
    • organization of effective activity of the executive bodies of the joint-stock company;
    • exercising control over the activities of the management bodies of the joint-stock company;
    • carrying out measures to protect the rights and implement the legitimate interests of shareholders.

Tasks of the Board of Directors

The Board of Directors performs the following essential tasks:

      • discloses information about the joint-stock company;
      • determines the directions of activity of the joint-stock company;
      • defines approaches to investment;
      • draws up plans and budgets of the joint-stock company;
      • creates mechanisms of internal control in the joint-stock company;
      • evaluates the performance of the company and its executive management bodies;
      • develops systems and methods for motivating and stimulating personnel working in a joint-stock company;
      • executes decisions of the general meeting of shareholders;
      • creates and maintains corporate culture.

How Does a Company’s Board of Directors Work?

After the meeting of shareholders, the Company should notify the future members of the Board of Directors of their election within no more than five days. Within a month, it is necessary to hold its first meeting, at which the appointment committee should propose a candidate for the chairman.

At the first meeting, a corporate secretary is appointed, the structure of the board of directors is formed, and the plan for holding meetings of the Company’s board of directors is approved. There are recommendations for organizing introductory meetings between members of the newly elected Board of Directors and employees of the Company within one month. For the members of the new board of directors to quickly get involved in the work, it is necessary to introduce an induction procedure, which usually consists of 2 stages:

        1. The first stage deals with the discussion of the main areas of the Company’s activities with members of the Board of Directors, familiarization with corporate documentation, and information on the main areas of the Company’s activities;
        2. The second stage involves the direct work of the newly elected members of the Board of Directors on one of the most urgent tasks of the Company. It is followed by a discussion of the results of such work.

What Is the Role of the Chairman of the Board of Directors?

The Chairman of the Company’s Board of Directors is a key person who has the necessary qualities to ensure the effectiveness of the Company’s management work. The chairman is elected from among the members of the board of directors at the first meeting.

It is necessary to understand the difference in the functions of the chairman of the board of directors and the general director. Managing an enterprise and a board of directors requires a variety of personal and professional qualities. The General Director of the Company performs the functions of an administrator and works for the result. The chairman is more typical of integrating and generating work. Considering such differences, it can be said that even a high-level CEO cannot always become a good chairman of the Board of Directors of the Company.