Loading the player...

What is a 'Board of Directors - B of D'

A board of directors (B of D) is a group of individuals, elected to represent stockholders. A Board’s mandate is to establish policies for corporate management and make decisions on major company issues. Every public company must have a board of directors. Some private and nonprofit organizations also have a board of directors.

BREAKING DOWN 'Board of Directors - B of D'

In general, the Board makes decisions as a fiduciary on behalf of sha​reholders. Issues that fall under a Board's purview include the hiring and firing of executives, dividend policies, options policies, and executive compensation. In addition to those duties, a board of directors is responsible for helping a corporation set broad goals, supporting executive duties, and ensuring the company has adequate, well-managed resources its disposal.

General Board Structure

The structure and powers of a Board are determined by an organization’s bylaws. Bylaws can set the number of Board members, the manner in which the Board is elected (e.g. by a shareholder vote at an annual meeting), and how often the Board meets. While there is no set number of members for a Board, most range from 3 to 31 members. Some analysts believe the ideal size is seven.

The board of directors should be a representation of both management and shareholder interests and consist of internal and external members.

An inside director is a member, who has the interest of major shareholders, officers, and employees in mind, and whose experience within the company adds value. An insider director is not compensated but are often already C-level executives, major shareholders, or stakeholders, such as union representatives.

Independent or ‘outside’ directors are not involved in the inner workings of the company. These member are reimbursed and usually get additional pay for attending meetings. Ideally an outside director brings an objective view to goal-setting and settling any company disputes. It is considered critical to strike a balance between internal and external directors on a board.

Board structure can differ slightly in international settings. In some countries in the E.​U. and Asia corporate governance is split into two tiers: an executive board and a supervisory board. The executive board consists of insiders elected by employees and shareholders and is headed by the CEO or managing officer. This board is in charge of the daily business operations of the company. The supervisory board is chaired by someone other than the presiding executive officer  and concerns itself with issues closer to what a U.S. board would deal with.

Election and Removal Methods of Board Members

While members of the board of directors are elected by shareholders, those put up for nomination are decided by a nomination committee. In 2002 the NYSE and NASDAQ required the nomination committee consist of independent directors. Ideally, directors’ terms are staggered to ensure only a few directors are up for election in a given year.

Removal by resolution in a general meeting can present challenges. Most bylaws allow a director to review a copy of a removal proposal and then respond to it in open meeting, increasing the possibility of an unpleasant split. In addition many directors’ contracts include a disincentive for firing -- a golden parachute clause that requires the corporation to pay the director a bonus upon being let go.

Breaking foundational rules can lead to the expulsion of a director. These include but are not limited to:

  • Using directorial powers for something other than the financial benefit of the corporation;
  • Using proprietary information for personal profit;
  • Making deals with third parties to sway a vote at a board meeting; and
  • Engaging in transactions with the corporation that result in a conflict of interest.

In addition, some corporate boards have fitness to serve protocols.


  1. Inside Director

    A board member who is an employee, officer or stakeholder in ...
  2. Directorate

    An organization headed by a director. In finance, directorate ...
  3. Classified Board

    A structure for a board of directors in which a portion of the ...
  4. Stagger System

    A method of electing a company's board of directors that puts ...
  5. Interlocking Directorates

    A common business practice where a member of a company's board ...
  6. Corporate Governance

    Corporate governance is the system of rules, practices and processes ...
Related Articles
  1. Managing Wealth

    Retired execs: How much do corporate boards pay?

    If you have the right skill set, getting a seat on a company board can be a lucrative and stimulating way to spend some of your new free time.
  2. Insights

    Tesla Adds Two Independent Board Members After Criticism

    Tesla responds to criticism that its board is too insular by bringing in two media CEOs.
  3. Personal Finance

    How to become a managing director at an investment bank

    Find out what it takes to become managing director at a major investment bank, starting from business school and surviving all of the titles in between.
  4. Insights

    The Currency Board: Understanding The Government's Bank

    Currency board, central bank - what's the difference? Find out more about this little-known monetary authority.
  5. Investing

    Tesla and GM to Face Shareholders Today

    The futures of two of the nation’s biggest automakers could change today if some angry shareholders get their way.
  6. Insights

    Tesla Will Announce New Board Members 'Fairly Soon'

    A group of influential pension funds urged the electric car maker to appoint two new directors, claiming that the current boardroom lacks independence.
  7. Investing

    How Your Vote Can Change Corporate Policy

    Shareholders are getting a bigger say in how companies are run. Find out how you can be heard.
  8. Investing

    Proxy Season 2016: Most Wonderful Time of the Year

    Each year, public companies hold shareholder meetings where individual and institutional investors vote on the future. Here is what to watch in 2016.
  9. Investing

    Buffalo Wild Wings Continues Its Board Shakeup

    Buffalo Wild Wings (NASDAQ: BWLD) plans to nominate two experienced industry executives to its board at its upcoming annual shareholder's meeting. With current members James M. Damian and Michael ...
  1. Who is responsible for protecting and managing shareholders' interests?

    Several parties are supposed to, including the company's employees, its executives and its board of directors. Read Answer >>
  2. How do a corporation's shareholders influence its Board of Directors?

    Find out how shareholders can influence the activity of the members of the board of directors and even change official corporate ... Read Answer >>
  3. What is the difference between a president and a CEO?

    In corporate governance and structure, the roles of both CEO and president often vary across firms. Read Answer >>
  4. What can shareholders vote on?

    Understand the usual voting rights of common stock shareholders, along with the importance of shareholders exercising their ... Read Answer >>
  5. What rights do all common shareholders have?

    Learn what rights all common shareholders have, and understand the remedies that can be taken if those rights are violated ... Read Answer >>
Hot Definitions
  1. Liquidity

    Liquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's ...
  2. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  3. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  4. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  5. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  6. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
Trading Center