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Log In / Register | Sep 22, 2017

The Importance of the Board of Directors

While franchisees don't usually have a board of directors, their publicly traded franchisor surely does and the vendors or other companies they deal with may.

A board of directors (B of D) is a group of individuals that are elected as, or elected to act as, representatives of the stockholders to establish corporate management related policies and to make decisions on major company issues. Every public company must have a board of directors. Some private and nonprofit companies have a board of directors as well. — Investopedia

According to Professor David F. Larcker of the Corporate Governance Research Program at the Stanford Graduate School of Business in an 18-page paper that he wrote titled, Board of Directors: Duties and Liabilities, effective boards satisfy dual functions:

  • Advisory: consult with management regarding strategic and operational direction of the company.
  • Oversight: monitor company performance and reduce agency costs.

Further, the professor writes, the responsibilities of the board are separate and distinct from those of management. It does not manage the company.

This one-minute Investopedia video gives a brief overview of a board of directors and a look at how the balance among the types of individuals on it affects its decisions.

For those who are in a position to consider installing a board of directors in their own company, Bernie Tenenbaum muses, Is It Worth Having A Board Of Directors? on the pages of Forbes:

The decision to implement a Board of Directors can be difficult for some private companies.  CEOs worry about loss of control and debate whether it is worth the cost and effort. Some private companies assume that a board of directors is just a formal entity that is created at the point where they take in investors.  We disagree.

With a great board of directors, you can have people who are totally focused on what you need to be successful.  They can guide you to avoid the risks you don’t really want to take.  A great board of directors can help expand your vision in a way that helps you achieve your long-term goals and strategic objectives.

 

 

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