Who's on First and Other Important Questions About Board Rules

Jan. 04, 2018

Every corporation and many other entities are required or chose to have a board of directors. Most business people understand that a board is responsible for the overall direction and control of the company, but it is usually less clear what each person on the board is actually supposed to do, and often less clear what they are not supposed to do.  Wonder no more fair reader.

Every board director is a fiduciary to the company as a whole, most specifically to the shareholders.  Unlike a politician, directors don’t serve just their own constituents, they serve everyone, even if elected by an investor group. Every director owes a fiduciary duty of loyalty and of care and should come to each meeting prepared, be active in the meeting discussions and make informed decisions.  However, individual directors have no authority to direct and control the affairs of the company other than through their vote.  They cannot call the CEO, CFO or other officers and order them to do something. 

The board chairperson is often also an officer, but not always.  If they are an officer, they have an official capacity and may be able to direct company affairs within the bounds of the authority given to him or her by the board.  This authority usually relates to working closely with the CEO to carry out board directives.  Whether or not an officer, the chairperson sets the agenda and runs board meetings. This person has the same vote and duties as any other board member, but because they can set the agenda and control discussions, they usually have more influence than other directors.

The board secretary is responsible for documenting board proceedings and overseeing good governance practices.  Keeping board minutes that provide enough information to meet statutory requirements, document board actions, show careful deliberation space by the board but not so much information as to be unusable or fodder for litigation can be challenging.  Many board secretaries are lawyers, whether they are official board members not.  Given their role in governance, most board secretaries are not board members.

It is common for C-level board members to participate in board meetings and often the CEO is a member of the board.  While they can participate in discussions, they don’t have a vote unless they are a board member and are often excused when the board enters executive session or discussions turn to the c-suite employees themselves, such as compensation or performance discussions.  If a CEO is also a board member, they need to be aware of the differences in their roles.  As CEO, they execute board directions, as a director, they set those directions and sometimes they may find themselves questioning and opposing recommendations of management or having to executive board directives they voted against.

While not as popular the last few years, it is common for the CEO to be the chairperson as well.  Proponents of this approach say it creates greater efficiency and convergence between the board and management while critics argue it makes it harder for the board to be independent of management and truly fulfill its duty of care.  Many modern governance experts recommend separating the roles or at the very least having a lead non-executive director who can function as the chairperson if the CEO/Chairperson has a conflict. This decision can have far reaching consequences and is best viewed considering the specific circumstances.  

Written By:
Todd Taylor

Todd helps business owners and their companies solve legal and business problems related to financing, startup, formation, shareholder disputes, contract drafting, negotiations, SEC compliance, company sales and purchases. No matter the situation, Todd helps his clients.

E-mail Todd

901 Marquette Ave S.
Suite 1675
Minneapolis, MN 55302

Call Us:

(612) 584-3400