Boards should act in a manner that is consistent with their oversight duties on behalf of shareowners while allowing management the freedom to execute the company's strategies without undue interference.
The key purpose of a company’s board of directors is to ensure the company's success by directing the company's affairs, whilst meeting the appropriate interests of its shareholders. In addition to business and financial issues, boards of directors must deal with challenges and issues relating to corporate governance, corporate social responsibility and corporate ethics.
Company boards should hold meetings periodically so that and so that individual directors can report on their particular areas of responsibility, to facilitate control of the company's overall situation, strategy and policy, and to monitor the exercise of any delegated authority. Every board meeting must have a chair, whose duties are to ensure that the meeting is conducted in such a way that the business for which it was convened is properly addressed, and that all those entitled to may express their views and that the decisions taken by the meeting adequately reflect the views of the meeting as a whole. The chair will also very often decide upon the agenda and might sign off the minutes on his or her own authority.
The board acts on behalf of the shareholder make overall policy decisions and provide oversight. The board has a fiduciary duty with respect to the shareholders; that is, the board has financial and other responsibilities to keep the corporation running efficiently so the shareholders don't lose money.
The board as a whole is responsible for actions carried out by its authority. As such, it behooves boards to ensure that executive authority is only granted to appropriate persons and that adequate reporting systems enable it to maintain overall control. The chairman of the board is often seen as the spokesperson for the board and the company. U.S. corporate boards are typically 8 -12 members in size.
CFA Institute Viewpoint
Directors' Loyalty
- Position: Corporate directors have a fiduciary duty of loyalty to the best interests of shareowners.
- Rationale: Directors are representatives of shareowners and are stewards of their interests. Directors oversee management, who execute the strategy approved by the directors in a manner that maximizes the shareowner value.
Board Member Responsibilities
- Position: Individual board members must take responsibility to ensure that the board of directors properly fulfills its responsibilities.
- Rationale: Unless each board member takes the board’s responsibilities toward shareowners seriously, the board may lose its focus. To achieve this goal, board members must have access to the information they need.
Priority of Shareowner Interests
- Position: Investors’ need for full, fair, and transparent disclosure should supersede all other interests.
- Rationale: Board members should ensure that the information that management provides to its owners meets these standards, regardless of what it might describe about management’s methods or mistakes. Investors' needs for material price-sensitive information outweigh the company’s need for confidentiality