Board of directors

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"Chairman of the board" redirects here. For , see .

A board of directors, also called board of trustees, board of governors, board of managers, or board of curators, is a group of people who oversee the affairs of a corporation. One member of the group may be designated or elected to serve as chairperson and is referred to as the chairman of the board.

Failures

While the primary responsibility of boards is to ensure that the corporation's management is performing its job correctly, actually achieving this in practice can be difficult. In a number of "corporate scandals" of the 1990s, one notable feature revealed in subsequent investigations is that boards were not aware of the activities of the managers that they hired, and the true financial state of the corporation. A number of factors may be involved in this tendency:

Most boards largely rely on management to report information to them, thus allowing management to place the desired 'spin' on information, or even conceal or lie about the true state of a company.
Boards of directors are part-time bodies, whose members meet only occasionally and may not know each other particularly well. This unfamiliarity can make it difficult for board members to question management.
CEOs tend to be rather forceful personalities. In some cases, CEOs are accused of exercising too much influence over the company's board.
Directors may not have the time or the skills required to understand the details of corporate business, allowing management to obscure problems.
The same directors who appointed the present CEO oversee his or her performance. This makes it difficult for some directors to dispassionately evaluate the CEO's performance.
Directors often feel that a judgement of a manager, particularly one who has performed well in the past, should be respected. This can be quite legitimate, but poses problems if the manager's judgement is indeed flawed.
All of the above may contribute to a culture of "not rocking the boat" at board meetings.

Because of this, the role of boards in corporate governance, and how to improve their oversight capability, has been examined carefully in recent years, and new legislation in a number of jurisdictions, and an increased focus on the topic by boards themselves, has seen changes implemented to try and improve their performance.

Sarbanes-Oxley Act

In the United States, the Sarbanes-Oxley Act (SOX) has introduced new standards of accountability on the board of directors. Members now risk large fines and prison sentences in the case of accounting crimes. Internal controls are now the direct responsibility of directors. This means that the vast majority of public companies now have hired internal auditors to ensure that the company adheres to the highest standards of internal controls. Additionally, these internal auditors are required by law to report directly to the audit board. This group consists of board of directors members where more than half of the members are outside the company and one of those members outside the company is an accounting expert.

Board of directors

Failures

Sarbanes-Oxley Act

See also