It depends on how the board is set up, but generally they don't deal with day-to-day things. They're mainly concerned with the big picture of how the company is doing, and directly deal with things like hiring/firing/compensating executives, M&A, etc.
> The board of directors sets the strategy for the firm.
I have never seen this be the case, though I can only speak for start-ups and early post-IPO eras.
The board provides oversight over the CEO and other executives responsible for planning in the organization. They review quarterly earnings and other financials, and provide feedback and thoughts on what the company wants to do in the subsequent planning period (which is driven by the CEO, not the board). Usually the board and leadership team meet only once a quarter, with the occasional call in-between (but otherwise very little face time).
More often than not the board's influence is in asking questions that help the CEO and leadership team better flush out their plan, pointing out potential issues or bringing up topics of discussion that may not have been considered. Maybe a board member has experience in something on your roadmap, or knows someone/company/product that can help.
Maybe they feel very strongly for/against something, so you commit to getting back to them with your thoughts/plan of actions after doing some more due diligence. Maybe they think you want to spend too much on a new initiative next year, and want to see a revised forecast that bakes in a more conservative approach.
Boards have say in executive compensation & equity grants, but rarely otherwise seem them get involved in financials. Usually they have their own financial analyst look over your data, and ask a lot of uncomfortable questions you don't currently have answers to that you maybe get embarrassed about when you finally do figure it out.
In rare circumstances, the board may have negative or lukewarm feelings about what's presented and the CEO may decide to revise that plan, but it really depends on the CEO. New CEO's may be more likely to buckle to board pressure/suggestions than an experienced CEO. I've seen it both ways (usually the CEO doesn't want to hurt future fundraising and may acquiesce more readily).
At the end of the day, it's the CEO leading strategy with the board providing a "first right of refusal/you're crazy" role.
> I have never seen this be the case, though I can only speak for start-ups and early post-IPO eras.
That’s usually because the founder(s) still have majority control at that point so the board just takes an advisory role. The dynamic completely changes when the board members can form a majority and remove the entire C suite.
> can form a majority and remove the entire C suite.
Having this power doesn't give them any authority over strategy, it just means that with proper paperwork they can remove someone. But boards don't put someone in the pilot seat unless they expect them to fly. CEO's are given a considerable amount of latitude (remember Adam Neumann?).
Which unfortunately didn't happen at HP with the phone hacking scandal.
The Chairman should have taken Patricia Dunn aside early on and told that the board had lost confidence in Her and some of the leadership team long before Patricia was forced out.
"The board of directors sets the strategy for the firm."
Not really.
The Board is there to oversee the company on behalf of the shareholders. Their primary job is oversight, they hire and fire the CEO, will be involved in recruitment for C-Level. They may or may not be involved with any kind of strategy. They will definitely be involved in financial governance issues such as fundraising, IPOs, major debt issuances.
They can be involved strategically by helping to form relationships, introductions, and in some cases providing guidance.
But the board doesn't make plans, do strategies etc. They're not very involved. Most board members don't do much at all.
That's because shareholders let them off the hook.
The board represents the members (shareholders) of the company, they are responsible to them for the performance of their company, which reflects the investment in the equity.
The CEO is an employee of the company. The power to set strategy may be delegated to him by the board, but the board is still responsible for it.
Public companies have additional responsibilities of the board because they are also responsible to comply with the market's rules and government regulation (eg SEC regulations) that are stricter for public companies than private.
Very little in terms of day-to-day, unless a board director decides to make it his/her mission to change something at that very low level. The board meets typically quarterly (monthly depending on the circumstances?) and is generally focused on higher level questions like the company's growth trajectory and forecasts, major problems, compensation strategy, hiring key executives, fundraising, M&A, etc.
Like I mentioned, any board member can decide to make an issue out of something, but you would expect a very legitimate reason to waste the other board members' or executives' time with a nit about a specific product feature or marketing campaign. Not to mention, a board member that meddles too much in the daily affairs of the company would draw scrutiny from both the CEO and other board members for not focusing on important strategic topics.
As far as I can tell from ones I have seen, they make more than a Senior Engineer makes mostly by RSUs.
You can find proxy statement for public companies(Amazon, Google,, they publish it before the annual shareholder meeting which most of the time includes compensation for board members.
In 2019, we awarded our standard ongoing compensation to each of our non-employee directors, including an annual $75,000 cash retainer payable in arrears and an annual $350,000 GSU grant. We paid an additional $25,000 annual cash retainer and an additional $150,000 annual GSU grant to John L. Hennessy, our non-executive Chairman of the Board of Directors, given his additional duties in the role. We also paid an additional $25,000 annual cash retainer to Ann for her role as the Audit Committee chairperson.We awarded the above-mentioned cash retainers and GSU grants to our non-employee directors on July 3, 2019, the first Wednesday of the month following our 2019 Annual Meeting of Stockholders. The exact number of GSUs comprising the equity awards wascalculated by dividing the target dollar value of the award by the closing price of Alphabet’s Class C capital stock on the day prior to grant and rounding up to the nearest whole share. All annual GSU grants made to our non-employee directors vest at the rate of 1/48th monthly, beginning on the 25th day of the month following the grant date until fully vested, subject to continued service on our Board of Directors through the applicable vesting dates.
And then they have a table with concrete values for each director, on page 38. The median for 2019 is $428,298.
Sometimes there is no income. For instance, I used to work for a Credit Union. The board members were elected by account holders. The board members were considered "volunteers". They are legally not allowed to receive compensation for their role.
Even outside formal meetings board members typically use their network (connections or board posts in other companies) to push the company's agenda. Which can lead to business deals or have effect on law or whatever.
When (ex-)politicians take a board seat corruption certainly is an issue. (I don't say that it's always a problem, but still a common issue)
Within the economy itself board seats are given by the shareholders. Typically to tie investments together. If a fund is investing in company A and B they certainly want cooperation between A and B and place board members with such relations in there. This comes problematic if a strong shareholder uses this to shuffle revenue away from other shareholders into another company where they have a stronger majority (say investment fund F owns 50% of A and 90% of B and then fills A's board in a way to encourage the A company to buy as much consulting from B as possible) There (similar to democracy) minority rights and supervision by authorities like SEC is important. (While there is a school of thought, which argues that the minority shareholders simply should leave and the free market will handle this as an overpaying A won't survive in the market)
$100k a year is peanuts; Fortune 500 boards often go way higher. And board members usually sit on multiple boards, so that's more like 500k/yr, plus tiny stipends for sitting on the local YMCA board and the committee of the local orchestra.
Usually, the type of person who sits on boards sits on several. They collect a fist full of equity for coming to each meeting, and lending their supposed business expertise to steer crucial decisions. In the Fortune 500 world, they're ferried around by company-owned aircraft to boot. Yes, it's a cushy lifestyle.
And when you realize that it's these sorts of bozos who made the plans to acquire your company, lied to the shareholders about their intentions, and then raped and pillaged it, and sold it all off for parts, and ruined what was an awesome place to work, and you get bitter about this particular societal inequality. ;-)
They have ultimate power over everything. They could ban my favourite subreddit tomorrow if they wanted.
In practice however, they hire a CEO to handle all that for them and don't get involved unless things get so out of hand that they feel their CEO is steering the ship wrong. At this point they tell the CEO what outcomes they expect, and if he can't or won't comply, he gets replaced.
> They have ultimate power over everything. They could ban my favourite subreddit tomorrow if they wanted.
No well-functioning board would act like that. Sure, they can pressure the CEO to take particular action when the company is under pressure, but normally, that kind of micromanaging by the board would be a sign of serious dysfunction.
They are there to represent the shareholders, appoint the executives, and to ensure the company is being managed well, including complying with laws and adhering to relevant societal expectations.
Sure, technically, perhaps, but also not really? Their fiduciary duty is to act in the company's best interests, so they can't do anything that a court could find was harmful to the company, or to shareholders, including minority shareholders.
So, much like in a healthy governmental system, there's a tension of power; between the board, management, shareholders, customers, the general public, and the law.
So it's not really "ultimate" power. Yes "ultimate" in terms of appointing executives and setting long-term company direction. But not "ultimate" in terms of being able to, say, arbitrarily shut down a subreddit; if management didn't agree and it was not clearly in the company's best interests, it could lead to a leadership crisis and/or a fiduciary breach.
Note the questioner specified: "In terms of day to day operations...". The point is that the board is expressly not meant to interfere in day-to-day operations.
The board basically control the management and directors of the company and sets the strategies and long term visions that the company directors then implement. In a day to day level, the way if achieving the goals are usually left to the CEO but sometimes there's also a so called operative board in which case the board is also present on a more direct level. The C-letter executives are responsible for hitting their targets set by the board, thus the board basically has a full say on everything that happens in a company.
Board of Directors represent the interest of shareholders. Management's incentives aren't perfectly aligned with those of shareholders so they are there to manage management, so to speak, and the long-term value of the company (to shareholders above anyone else, in the end)
Boards don't actively do anything. They're a collection of notables whose presence provides clout to companies so they can attract investors, and whose inside connections to government and other power structures allows companies to curry favor and get special treatment. It's all politics and bullshit.
Bear in mind that not all companies are quite as big as this lot. I don't know the actual stats for any country but I think that small companies are quite important in terms of additive scale. In general your small company has a nasty habit of hiring people, abiding by the rules and paying taxes.
So, I happen to be a Managing Director of a small company (UK) - we have 20 odd employees and a t/o of ~£1.5M. We are a private company, not public (more later.) We as a board have simple duties, largely decided by ourselves. We also have responsibilities that are dictated by the country: we have to file accounts on time to a proscribed format, pay corporation tax regularly, pay VAT returns on a regular basis etc. We also have to have a certain structure (two directors minimum) and hold regular meetings such as the AGM. There's a few other requirements but in general you do it how you like.
We also have shareholders who are not directors. These are employees who have served long enough (>four or so years is the general rule.) These are Class B shareholders (Me and the other directors are Class A). The difference is Class A stakeholders can vote on stuff - ie run the company and Class B can benefit from company profits but don't get to run my company.
Just to be clear: me and my partners (2) run the company but quite a few people get to benefit via shareholdings. If the shit hits the fan, me and my partners get to be kicked in the bollocks, shareholders only get tickled.
Oooh, SARS-CoV-2: We'll be fine for a while longer.
Another way to think of it is that directors are like school governors.
They are powerful, but even more so they are responsible for the organization.
Company directors are public figures. They can be investigated for misconduct, struck off from being a director again, and must publish their personal details publicly. (They can also sign passport applications and vouch for visa applications: you get ups as well as downs!)
They appoint the executives but they have to fire them too, and are held accountable for the behavior of the people they choose. Mess it up and you’ll never sit in a board again.
The stakeholders go straight to the directors when things go wrong. This is especially fun when you have hundreds of thousands of members of the public as stakeholders in a publicly traded business.
They represent the shareholders. They usually have the power to hire/fire the CEO and other CxO level management. They run "the company on behalf of its members".
They're expected to set the company's strategy, are responsible for the company's regulatory compliance, ensure that the company is properly reporting its performance to its shareholders, that it doesn't trade while insolvent, etc.
There are "executive directors" that have management responsibility, eg the CEO and "non-executive directors" that do not. In the US, often the CEO and the President of the board are the same person, but that's less common elsewhere and is considered a flaw in corporate governance.
There is also the concept of "independence" where a director is independent of related interests, eg being also related to other corporations that have major business as a supplier or customer etc.
> There are "executive directors" that have management responsibility, eg the CEO and "non-executive directors" that do not. In the US, often the CEO and the President of the board are the same person, but that's less common elsewhere and is considered a flaw in corporate governance.
Older and bigger companies tend to have the CEO and President be different people (T-Mobile, IBM, etc.)
Usually, when the company is smaller, they are the same person.
Whether they are the same or separate people does not really matter very much in practice, since the board will often reset both roles at the same time in any circumstance where they do not like management.
In the US the biggest impact a board can have is the hiring and firing of the CEO. (And the threat of that) They give the CEO guidance, and check performance, but as a group they work through the CEO.
The CEO has to aggregate the needs of both the board and their directs (and customers and suppliers) into a coherent whole. Not an easy job as if everyone gets 100% of what they want the organization can’t function. (In a sense it’s like product management at the company level)
reply