Boards of Directors Introduction and Basic Overview

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Sections of this topic

    Introduction
    and Basic Overview

    © Copyright Carter
    McNamara, MBA, PhD, Authenticity Consulting, LLC
    .

    Sections of This Topic Include

    What is a Board of Directors? What Does a Board Look Like?
    For-Profit (“Corporate”)
    Boards Compared to Nonprofit Boards

    Also consider
    Related Library Topics

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    What is a Board of Directors? What Does a Board Look Like?

    A corporation, whether for-profit or nonprofit, is required
    to have a governing Board of Directors. To explain, a corporation
    can operate as a separate legal entity, much like a person in
    that it can own bank accounts, enter into contracts, etc. However,
    the laws governing corporations require that a corporation ultimately
    is accountable to its owners (stockholders in the case of for-profits
    and the public with nonprofits). That accountability is accomplished
    by requiring that each corporation has a Board of Directors that
    represents the stockholders or the public.

    Members of a governing Board have certain legally required
    (fiduciary) duties, including duties of care, loyalty and obedience
    (some states and countries use different terms — for example,
    in Canada, the duties of care and loyalty are often stressed).
    For-profit Boards often are referred to as “corporate”
    Boards, which really is a misnomer because both nonprofit and
    for-profit corporations are required to have Boards — not just
    for-profit corporations.

    The phrase “Board operations” often refers to the
    activities conducted between Board members and can include development
    and enactment of Board bylaws and other Board policies, recruitment
    of Board members, training and orientation of Board members, organizing
    Board committees, conducting Board meetings, conducting Board
    evaluations, etc. The phrase “governance” often refers
    to the Board’s activities to oversee the purpose, plans and policies
    of the overall organization, such as establishing those overall
    plans and policies, supervision of the CEO, ensuring sufficient
    resources for the organization, ensuring compliance to rules and
    regulations, representing the organization to external stakeholders,
    etc. The nature of Board operations and governance depends on
    a variety of factors, including explicit or implicit use of any
    particular Board model, the desired degree of formality among
    Board members and the life-stage of the Board and organization.

    Governing Boards can have a variety of models (configurations
    and ways of working), for example, “working Boards”
    (hands-on, or administrative, where Board members might be fixing
    the fax one day and strategic planning the next), “collective”
    (where Board members and others in the organization usually do
    the same types of work — it’s often difficult to discern who
    the Board members actually are), “policy” (where Board
    members attend mostly to top-level policies), “Policy Governance”
    (trademark of Carver Governance Design, where there are very clear
    lines and areas of focus between Board and the CEO), etc. All
    of these models are types of governing Boards.

    Boards can have a broad range of “personalities.”
    For example, Boards of large for-profit and nonprofit corporations
    might be very formal in nature with strong attention to Parliamentary
    procedures, highly proceduralized Board operations, etc. In contrast,
    Boards of small nonprofit or for-profit corporations might be
    very informal in nature. Some people believe in life stages of
    Boards, including that they 1) start out as “working”
    Boards where members focus on day-to-day matters in addition to
    strategic matters, 2) evolve to “policy” Boards where
    members focus mostly on strategic matters, and 3) eventually become
    large, institutionalized Boards that often have small executive
    committees and maybe many members some of which are “big
    names” to gain credibility with funders or investors.

    For-Profit (“Corporate”)
    Boards Compared to Nonprofit Boards

    People might be surprised to read that there are more similarities
    between for-profit and nonprofit Boards than there are differences
    — after all, both types of organizations are required to have
    Boards because both types are corporations, thereby having similar
    fiduciary responsibilities among members. Members of both types
    of Boards must attend to the many activities involved in Board
    operations and governance. Both types of organizations must conform
    to rules and regulations for operations of corporations within
    their states/provinces and countries, including for employment
    laws and tax filings (each type of organization files different
    types of federal tax forms). Thus, many of the topics included
    throughout this overall Library topic on Boards are relevant to
    both types of organizations.

    Certainly, there are differences. For-profit Board members
    often are paid, whereas nonprofit Board members usually are not
    (except to be reimbursed for expenses). For-profit Board members
    uniquely attend to decisions about dispersing profits to owners
    (to stockholders), for example, in the form of stock equity and
    dividends, whereas nonprofit Board members do not seek to maximize
    and disperse profits to the owners — the owners of nonprofits
    are members of the public. Nonprofit Board members often must
    participate in robust fundraising by soliciting funds from individuals,
    foundations, corporations and government entities. Nonprofits
    corporations often enjoy certain tax advantages, including tax-exemption
    (being able to avoid payment of certain taxes) and charitableness
    (so donors can deduct donations from their taxes). To retain that
    charitable tax status, Board and staff members of nonprofits must
    refrain from exceeding certain limits of lobbying and self-dealing.

    The following links depict a concise comparison of for-profit
    to nonprofit corporations:
    How Nonprofits Compare to For-Profits
    For-Profit
    and Nonprofit Boards: More Similarities Than Differences?

    Nonprofit
    and For-Profit Boards — a Comparison

    Be sure to see the many general resources for Boards in the
    USA and Canada, near the end of this Web page. Also see the closely
    “Related Library Topics” and “Recommended Books”
    referenced from the bottom of the page.

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