Reasons to Form a Board of Directors
If you have decided to incorporate, you may choose to have a board of directors, especially if the company is growing to the point where there are too many shareholders to effectively make important decisions. To get an idea of the key benefits of having a board of directors, we asked our experts to provide a list.
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If you have decided to incorporate, you may choose to have a board of directors, especially if the company is growing to the point where there are too many shareholders to effectively make important decisions. To get an idea of the key benefits of having a board of directors, we asked our experts to provide a list.
- Connects owners and operators
When there are too many owners to effectively govern the company, power is given to the board of directors, who can then serve as an intermediary between the owners (shareholders) and those operating the company (senior management). This means the 2 sides will not be alienated, and their respective authorities will work in conjunction. This is the central role of the board as an authoritative group.
- Accountability/authority
The existence of the board allows for a recognized highest authority within the company. In addition to being the highest authority, the board, as a group, is also held accountable for all aspects of the company. This produces a structured design to the corporation where those in charge are clearly designated.
- Security
The board of directors will monitor the operations of the company to ensure that things are running smoothly, that all necessary information is properly disclosed, and that investors are confident in the security and stability of the company. In doing so, the board assesses management’s performance and implements changes, or even replaces management, when necessary.
- Connections
Individual directors will almost inevitably have many contacts to key individuals and groups outside the corporation. At the behest of management, their connections to financial institutions, ability to conduct public relations activities, and ability to court potential customers could prove invaluable to the corporation.
- Expert advice
The members of a board of directors will have knowledge, skills, and experience in the management of a corporation and can provide those running the operations of the company with advice on how to improve and strengthen the corporation, including the development of quality managers. They can initiate offers to advise or can serve as a source of feedback for managers when asked. This is a non-authoritative contribution of individual directors, so it must not be allowed to interfere with the board’s authoritative role or the authority it has delegated to management.
Source: Corporate Boards that Create Value by John Carver, with Caroline Oliver (Jossey-Bass, 2002). John Carver is the author or co-author of 5 books on board leadership, the author of more than 150 journal articles on the topic, and the co-editor of the bi-monthly newsletter Board Leadership. Caroline Oliver is the editor of The Policy Governance Fieldbook and is a founder and previous board chair of the International Policy Governance Association.
