Globalization and capitalism has greatly changed the way we do things. Over the centuries, we’ve realized that if we work together and pool our resources, we can achieve so much more. The sophisticated society we have today is a testament to that. Technology, medicine, warfare, and even business have all been revolutionized, evolving into the fast-paced, large-scale behemoths we have today.
We didn’t achieve all that growth without realizing a few other things, too. As we develop, we have an even bigger need for accountability and responsibility in society. The recent financial crash and the various crises over the years all happened because people in authority threw caution and consequences out the window.
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The Board of Directors
To understand how important responsibility is in our world today, consider this. Say Jane bought $10,000 worth of shares in Bake-a-Cake LLC. Suddenly, President Bonbon and his Chief Financial Officer, Mr. Eclair, fled the country. Bonbon and Eclair were cooking the books to show profits, but Bake-a-Cake was deep in debt!
Bake-a-Cake Company is now in jeopardy, and so is Jane. She stands to lose her $10,000, money intended for her retirement. How can shareholders like Jane make sure that the companies they invest in won’t act for selfish reasons, putting them at risk?
Enter the Board of Directors. As a company grows larger and more powerful, their area of responsibility expands, too. They need to take care of shareholders like Jane. These people gave them money, trusting them to put it to good use so that everyone benefits. The Board of Directors makes sure that the company does exactly that—act for everyone’s benefit. Learn more about the importance of corporate governance in this blog post.
Called by many names, the Board of Directors, Board of Trustees, Board of Regents, or simply “The Board”, they’re the group of people elected by their stakeholders to oversee what the company’s doing. They make sure that people can’t get away with dishonesty and fraud so easily. They’re not to be confused with the similar but less powerful advisory board, which you can learn more about with this course.
Functions of The Board
How exactly does the Board oversee the company’s actions? The company is run day-to-day by officers like the president, finance officers, accountants, etc. They’re appointed by the board, who make sure that those officers run the company following its bylaws. Bylaws are a set of rules that dictate how the company achieves its goals and mission. They also detail exactly what Board functions are, how and when they should meet, and how they get elected.
As the governing entity, they’re also responsible when the company is found to have been doing shady things, like cooking the books or tax evasion. That’s why the officers at the top of a company are very careful whenever called to face the board. They’re usually afraid of getting chewed out because they didn’t meet targets or they aren’t following procedure. Having this kind of authority present over such powerful officers helps the shareholders make sure everything stays nice and legitimate.
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Positions in the Board
Chairman of the Board/President
The chairman of the board is the highest position a board can have. The Chair runs the board meetings, appoints the various committees, and does whatever other duties are specified by the bylaws.
It’s quite stressful to be chairman of the board, as a ton of responsibility rests on your shoulders. You’ll notice most chairmen, especially those in large corporations, have either a lot of white hair, or no hair at all!
Levity aside, the chairman is the most culpable member of the board, as he is the public face of the company. He must often give speeches and attend functions on behalf of the organization.
Vice Chair/Vice President
The Vice Chair or Vice President serves right under the Chairman. Their primary function is to shadow the chair in most of his duties. A lot of VPs are called “The Little President”, because they’re being groomed to eventually take over the position.
When the chair is absent, they have to step in. There are some companies that are even structured with several types of Vice Chairs for their various committees, but there is always one VP that’s lined up to be President or Chair.
The secretary is the logistics and records person of a board. He must take notes, record the minutes at board meetings, and then submit them for approval or any changes that need to be made.
Like a librarian, secretaries take care of records, legal documents, and bylaws. Secretaries are very organized, meticulous people, as they have to practically know the basics of the corporation’s records by heart.
Can you imagine what it must be like to be a secretary for a multinational corporation whose records span the world over? It’s practically like having a library in your head! Truly, being secretary is no simple task.
The treasurer, like the name suggests, takes care of all the organization’s, well, “treasure”. He takes care of major financial records, signs off on all the checks the accountant writes, and any purchases made by the company. Their hands are quite veiny from all the signing they have to do!
The treasurer has to report at each board meeting, and is present for the tax filings of the organization. If any sketchy financial transactions push through, the first question is, “Why did the treasurer sign off on this?”
Good treasurers and secretaries are very thorough. They should have a good background in finance, too, so keep that in mind when elections come around.
Board Members and Committees
Members of the board who aren’t in any of the previous positions usually hold committee roles. These committees are formed depending on the company’s needs. These committee heads can’t play hooky either. They should still be present at meetings, always be updated, and vote on board matters.
They’re like “little chairs”, each heading their own type of committee. Marketing, Audit Finance, and Operations or Sales are common types of committees. They perform functions similar to being chairperson of that specific department.
The Chair, Vice Chair, Secretary, and Treasurer roles require previous tenure as a committee head. The load of responsibility those roles hold call for someone who really understands the operations of the company and has had their “boots on the ground”. The best commanders are the ones who know what it’s like to be soldiers, after all!
How to Use What You’ve Learned
As a responsible shareholder, it’s good to understand how the Board of Directors works and the different positions it has. This will help you act wisely when voting, deciding which company to invest your money in, and holding them accountable for their actions.
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