The Purpose of the Board of Directors

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Corporate board of directors are charged with overseeing a company's management and future direction.
Corporate board of directors are charged with overseeing a company's management and future direction. (Image: colorful boardroom image by Pix by Marti from Fotolia.com)

A board of directors, which usually includes about 10 people, is responsible for overseeing the general direction of an organization. The board, if it does its job well, serves as a sort of watchdog over the management of the organization. It represents the interests of the company's shareholders and protects the firm's reputation.

Select Executive

A company's chief executive runs the show, but that executive needs to be accountable to someone. That's where the board of directors comes in. Not only does the board appoint the chief executive, it also sets her salary and reviews her performance. Boards are responsible for motivating successful executives and knowing when to eliminate unsuccessful ones. They also must pick new board members as needed.

Establish Objectives

The board sets long-term goals for companies that govern their future direction. These policies are established through periodic votes at the board's quarterly or annual meetings. The board then must periodically review whether the objectives are being met.

Represent Shareholders

The members of the board of directors are typically big shareholders in the company, and it's their job to represent both their own interests and those of fellow shareholders. Though management is often shareholders, it is primarily paid employees there to ensure a reasonable return on investment for the owners. The board therefore must prevent management from taking excessive pay, failing to adhere to the company's objectives and more.

Manage Finances

Particularly at nonprofit organizations, a board of directors needs to get involved in the organization's finances. That means approving budgets, raising money and safely investing the organization's funds to ensure that financial resources are available as needed. As Warren Buffett has often said, this involves having a focus on risk management.

Protect Image

The board of directors also has a marketing and public relations function. It must ensure that the organization is held in high-esteem by the general public. That means getting the organization involved in charity work, ensuring that customers are happy and responding to crises with clear communications to the public.

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