Board of Directors

Topics: Board of directors, Corporate governance, Management Pages: 17 (4045 words) Published: July 8, 2013
5bibliography19

TABLE OF CONTENTS

Introduction

The board is made up of individual men and women (the "directors") who are elected by the shareholders for multiple-year terms. Many companies operate on a rotating system so that only a fraction of the directors are up for election each year; this makes it much more difficult for a complete board change to take place due to a hostile takeover. In most cases, directors either, 1.) Have a vested interest in the company,

2.) Work in the upper management of the company, or
3.) Are independent from the company but are known for their business abilities. The number of directors can vary substantially between companies. Walt Disney, for example, has sixteen directors, each of whom are elected at the same time for one year terms. Tiffany & Company, on the other hand, has only eight directors on its board. In the United States, at least fifty percent of the directors must meet the requirements of "independence", meaning they are not associated with or employed by the company. In theory, independent directors will not be subject to pressure, and therefore are more likely to act in the shareholders' interests when those interests run counter to those of entrenched management. Committees on the Board of Directors

The board of directors responsibilities include the establishment of the audit and compensation committees. The audit committee is responsible for ensuring that the company's financial statements and reports are accurate and use fair and reasonable estimates. The board members select, hire, and work with an outside auditing firm. The firm is the entity that actually does the auditing. The compensation committee sets base compensation, stock option awards, and incentive bonuses for the company's executives, including the CEO. In recent years, many board of directors have come under fire for allowing executives salaries to reach unjustifiably absurd levels

In exchange for providing their services, corporate directors are paid a yearly salary, additional compensation for each meeting they attend, stock options, and various other benefits. The total amount of directorship fees various from company to company. Tiffany & Company, for example, pays directors an annual retainer of $46,500, an additional annual retainer of $2,500 if the director is also a chairperson of a committee, a per-meeting-attended fee of $2,000 for meetings attended in person, a $500 fee for each meeting attended via telephone, stock options, and retirement benefits. When you consider that many executives sit on multiple boards, it's easy to understanding how their directorship fees can reach into the hundreds of thousands of dollars per year.

Ownership Structure and Its Impact on the Board of Directors The particular ownership structure of a corporation has a huge impact on the effectiveness of the board of directors to govern. In a company where a large, single shareholder exists, that entity or individual investor can effectively control the corporation. If the director has a problem, he or she can appeal to the controlling shareholder. In a company where no controlling shareholder exists, the directors should act as if one did exist and attempt to protect this imaginary entity at all times (even if it means firing the CEO, making changes to the structure that are unpopular with management, or turning down acquisitions because they are too pricey). In a relatively few number of companies, the controlling shareholder also serves as the CEO and / or Chairman of the Board. In this case, a director is completely at the will of the owner and has no effective way to override his or her decisions.

Board of Directors:

Structure and Consequences

Board Structure

Boards are often described in terms of their salient structural...
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