As your business grows, your operations are bound to become more intricate. New challenges will emerge, and you’ll have to make tough decisions. That’s where a board of directors can come in handy.
Made up of trusted advisors and shareholders, these experts help your company thrive. They’re the equivalent of having an advisory panel you can turn to for guidance and direction. A board of directors is essential to make the best decisions for your company.
While a board of directors is not a legal requirement for every business, the benefits are significant. A board can do wonders for your company’s reputation, even if it’s not mandatory. Beyond providing advice, they can help you tackle potential risks head-on and bring fresh ideas to the table.
Additionally, a board of directors can keep your company on the right side of the law. They’re always up-to-date on the latest regulations and make sure your business ticks the right boxes.
In this guide to boards of directors, we’ll discuss everything from how a board is structured to how they make decisions and handle finances. While state compliance can be a headache, you can breathe a little easier with Mosey’s knowledgeable and experienced team on your side.
What Is the Structure of a Board of Directors?
To function effectively, a board of directors needs a well-defined structure. While the specific titles and roles may vary depending on your company’s size and industry, some common positions include:
President
The president is the highest-ranking officer on the board and often serves as the company’s primary spokesperson. They provide leadership and guidance to the board and preside over meetings.
Vice President
The vice president supports the president and may step in to lead if the president is unavailable.
Secretary
The secretary is responsible for maintaining accurate records of board meetings, including agendas, minutes, and resolutions. They also handle legal filings and other administrative tasks.
Treasurer
The treasurer oversees the company’s financial affairs, including budgeting, financial reporting, and compliance with financial regulations.
While these are the most common titles, your board may have additional positions, such as an executive director who manages the board’s day-to-day operations or various committee chairs who lead specific areas like audit, compensation, and governance.
Depending on your company’s bylaws, board positions are typically filled through elections or appointments. When selecting board members, prioritize individuals with diverse backgrounds, expertise, and perspectives to foster a well-rounded and effective team.
What Are the Responsibilities of Board Members?
Your board of directors isn’t just there to make your business look good — although they do that, too. They also have serious responsibilities that go way beyond attending meetings and nodding along.
Fiduciary Duty
First and foremost, board members have a fiduciary duty to your company. This legal term means they must always act in the best interests of the company and its shareholders. This duty encompasses three main aspects, detailed below.
Duty of Care
Board members must make informed decisions carefully considering all available information. They can’t just rubber-stamp everything that comes their way. Rather, they must do their due diligence and ask tough questions.
Duty of Obedience
Board members are also responsible for upholding the company’s rulebook, which can include bylaws and other key documents that outline how the company should operate. They ensure everyone follows the agreed-upon rules.
Duty of Loyalty
The final fiduciary duty requires that board members act in the best or “sole interest” of the company and its stakeholders, not themselves. This duty provides peace of mind and encourages trust between a board and the rest of an organization. However, board members have many more duties beyond their fiduciary responsibilities.
Strategic Oversight
Board members collaborate with your executive team to craft and execute plans for the long haul. They act as your company’s sounding board, offering guidance and support to help you navigate an ever-changing business landscape.
Financial Oversight
The board watches your company’s finances, reviewing budgets, financial reports, and investment proposals. If you want someone to make sure your money is being put to good use, your board is the place to go. Every company needs to be on solid financial footing, and their board sees that they are.
Hiring and Evaluating Executive Leadership
The board is also responsible for finding, hiring, and assessing the performance of your top executives, including the CEO. They set high standards, provide constructive feedback, and make tough decisions about compensation and leadership transitions.
Ensuring Compliance
We’ll discuss this aspect in more detail later, but the board is responsible for ensuring your company follows the rules, from environmental regulations to employment laws and data privacy. They stay up-to-date on the latest legal requirements, so your business is always compliant.
Risk Management
Finally, board members constantly scan the horizon for potential risks that could harm your company. They develop strategies to reduce these risks, whether it’s implementing new safety protocols, diversifying your income streams, or finding other innovative solutions.
As you can see, serving as a board member is no walk in the park. Dedication, expertise, and a strong moral compass are part of the board’s requirements. A group of experts in your corner helps your business better equip itself to take on new challenges.
Remember, compliance isn’t a one-time thing. Instead, it’s an ongoing commitment, and changes are constantly coming in the form of laws and regulations. With a board, you can stay one step ahead of these developments.
How Does a Board Maintain Legal Compliance?
When it comes to a board of directors, compliance is a mandate, and the rules of the game can vary depending on where you’re playing. Each state has its own unique set of requirements for boards of directors, ranging from how many people need to be on your board, who can be on it, and how often you need to hold meetings.
Because these regulations cover everything from financial reporting to internal controls, they can have serious consequences if you don’t comply. There are also industry-specific regulations. Whether you’re in healthcare, finance, or tech, there are likely specific rules your board needs to follow.
Keeping up with all these regulations and making sure your board is in the clear can pose a real challenge. That’s why it’s important to have a reliable system for tracking board minutes, resolutions, financial reports, and more.
A simple place to start is to employ a business compliance platform like Mosey. With Mosey, you can seamlessly manage all your compliance needs in one place, making it easier than ever to ensure you’re following the rules and freeing up time to focus on more important business operations.
What Are Best Practices for Board Governance?
Creating a board of directors is one thing, but encouraging it to thrive is another altogether. Here are some tried-and-true practices to help your board operate like a well-oiled machine:
Regular Check-Ins and Self-Reflection
Think of this strategy as a regular tune-up. Schedule routine meetings to discuss business and evaluate the board’s functioning. Are meetings productive? Are decisions made effectively? Is everyone’s voice heard? Regularly assessing yourself identifies areas of improvement and keeps everyone on the same page.
Clear Rules of the Road
Ever tried to play a board game without knowing the rules? It’s not much fun. The same goes for your board. You must ensure clear policies and procedures are in place for every aspect of its operation.
That means everything has clearly outlined rules, from how meetings are conducted to how conflicts of interest are handled. Setting expectations this way helps prevent misunderstandings and ensures everyone is working toward the same goals.
Openness and Honesty
Transparency is the key to a healthy board dynamic. Your board should feel confident they can freely exchange ideas and talk to one another without retaliation. Consider establishing a safe space for your board where everyone feels comfortable sharing opinions.
If they happen to disagree with the majority, a board member shouldn’t fear retaliation. This step will create an environment where everyone can collaborate and feel valued and heard.
Managing Conflicts of Interest
Conflicts of interest can be a real thorn in the side of any board. But they’re not uncommon, and they don’t have to be a deal-breaker. Whether you identify, disclose, or manage conflicts, a clear policy must be in place.
This policy could involve recusing board members from certain discussions or votes or, in extreme cases, requiring them to step down from the board.
Never Stop Learning
The business world is constantly changing, and your board needs to keep up with the times. Encourage your board to take part in continuing education efforts. Have them attend industry conferences and stay tuned into the latest trends. Such insights will bode well for their decision-making.
Go Beyond the Basics
While the above practices are essential, there’s always room to go above and beyond. Consider implementing additional measures, such as:
- Board diversity
- Board evaluations
- Board training
- Board refreshment
A board that performs at a high level takes time to build — but with these best practices, your company’s future rests on a strong foundation.
Stay Compliant With Mosey
Managing your board, or even multiple, doesn’t have to pose a problem. Mosey makes it easy, helping you stay organized and informed. That way, you can focus on growing your business.
If you’re ever unsure about the specifics of compliance and where the responsibility falls, don’t hesitate to seek professional guidance. Schedule a demo with Mosey today and learn how our business compliance solutions can elevate your business.
