The board of directors are perhaps the most vital part of any successful business as they are responsible for day-to-day operations, finances and ensuring that the business is complying with all legal and statutory requirements. When any business is choosing the directors to sit on the board, the business must take many factors into account, such as how many directors are optimum, what are their qualifications, what are the duties of each member and of the board as a collective, and what is the reporting chain that is to be followed.
In this article we will explore all of these aspects of a company’s Board of Directors.
The Composition of the Board
Typically a small start-up or private company will just have one director who is usually also the main shareholder and the person who is in charge of the business as a whole. Often the minimum legal requirement for a Private Limited Company is one director, so that there is somebody accountable for the company following legal and statutory requirements. As companies grow, however, there will be too much for just one director to be able to deal with and so a board of directors will be formed to share the responsibility or the running of the business and to provide accountability and oversight at every level of the company. Inter-board oversight is really important as director disqualifications have been increasing significantly in recent years. One team of expert director disqualification solicitors stated that the number of disqualifications and misfeasance claims have been on the rise since the passing of certain bills and that this number is only going to rise. The Insolvency Service can cause major damage to individual careers and to the reputation of companies so it is vital to ensure comprehensive oversight.
The size of the board will depend on the size of the business, but there is a fairly universal structure of most major companies’ boards:
- Company Chairman: At the top of the structure whose role is to oversee the business as a whole
- Managing Director: Reporting directly to the chairman and are usually a salaried employee of the company
- Three Executive Officers: Also salaried employees who are responsible for the various departments such as marketing, sales and finance
- Two Non-Executive Directors: These are usually not salaried employees, but are paid fees for strategic advice
Benefits of Board of Directors
A well set out board structure allows for the logical delegation of the various departments of the company. It allows shareholders and investors to see who is responsible for each department and also establishes a clear chain of reporting. For example the sales team reports directly to the sales manager who will in turn report directly to the executive officer for Sales. That executive officer’s performance and consequently their salary and bonuses will then be decided by the non-executive directors who have been appointed by the managing director who must report directly to the chairman. This structure is designed to create oversight and accountability at every level which is so important in businesses of every size as there are serious legal ramifications for business malpractices.
Qualifications and Duties of Directors
The qualifications required by each director will depend on their duties and so will vary person to person. The director in charge of finance for example will often have the relevant degree as well as extensive experience in the finance sector. Likewise, the director of marketing will have marketing qualifications as well as extensive experience in marketing with a good track record of results. The managing director whose job is to oversee the board as a whole should be a well-rounded businessman who has knowledge and experience in every aspect of the company’s operations. Each executive officer is responsible for the running and ultimately the results of their department. They have to deal with their department’s personnel, departmental strategies, identifying and resolving any issues that need addressing, and making sure that their department is contributing fully to the overall operation of the company. Their remuneration, which is often decided by the non-executive officers, will be decided based upon their performance and their department’s overall contribution to the continuing success of the business.
A well structured and well qualified board is one of the key factors that contribute to the success or failure of a company. Each individual director must bring a highly specialized set of skills and experience to the table whilst also working together to form a cohesive, effective unit. By implementing a clear chain of reporting, both responsibilities and rewards are shared, whilst at the same time individual and collective oversight can be enforced. A great company needs a great board of directors, and the very best boards never stop evolving, along with their business.
