Many associate the term “board of directors” with publicly held companies that have shares listed on a major stock exchange, yet these represent only a small portion of board-led organizations.
Boards of directors serve as the nuclei of a wide array of organizations across nearly every industry and sector, including public corporations, financial institutions, nonprofit organizations, and professional associations — just to name a few. A board of directors can come in many forms, with varying structures, roles, and responsibilities depending on the needs of the entity it serves.
In all cases, however, the board plays a crucial leadership function in shaping an organization’s future, ensuring its success, and keeping it on track and focused on its mission and goals.
Board of Directors Definition
The phrase “board of directors” often is used interchangeably with terms such as “board of trustees,” “board of governors,” or simply “the board.” Regardless of the terminology, the board of directors is a group of individuals either elected or appointed to provide organizational leadership and oversight.
All public companies are required to have a board of directors to represent shareholders. Many privately held companies and nonprofit organizations also rely on the guidance and supervision of a board of directors.
At publicly held corporations, shareholders elect board members to represent their interests within the company. At other types of organizations, board members can either be elected or appointed, depending on factors such as the type of organization, industry regulations, and the geographical location.
Once elected or appointed, board members usually serve for a predetermined period of time. The length of a term varies from organization to organization, and typically is spelled out in the organization’s bylaws.
Both BoardSource and the National Association of Corporate Directors (NACD) recommend staggered terms. This allows an organization to bring on a certain number of new board members each year and avoid a scenario where all members’ terms expire at the same time. If an organization uses staggered terms, elections might be held every year — but not for every seat on the board.
Many organizations also set term limits that put a cap on the number of terms an individual can serve on the board. They are an important way to ensure the makeup of the board is dynamic and able to meet the organization’s evolving needs over time.
According to a recent BoardSource report, 54% of nonprofit boards have both terms and term limits. The most common term limits for nonprofits are two three-year terms. For corporate boards, the NACD’s recommended limit for board service is 10-15 years.
Size of an Average Board of Directors
There’s no “one-size-fits-all” when it comes to boards of directors. The number of directors depends on the needs of the organization and often is spelled out in the organization’s bylaws.
According to a report from The Conference Board, the median board size for companies in the Russell 3000 is nine. For companies in the S&P 500, the median board includes 11 members. A report from Russell Reynolds Associates found the average size for nonprofit boards is 30 members.
It’s important for organizations to strike the right balance in determining board size. If a board is too small, members are stretched thin. If it’s too large, it can be challenging for the board to operate as a cohesive group.
Board of Directors Structure
As with board size, there is no universal formula for determining an optimal board structure, which typically is outlined in the bylaws. The structure of a board of directors varies depending on the needs of the organization, the industry, and the associated regulatory environment.
Many organizations define parameters for their board makeup, such as a set number of director positions designated for community representatives versus industry experts or internal executives. For corporate boards, the CEO often serves as chair and board members must represent shareholders’ interests. Having strong community representation is a priority for many nonprofit boards.
Boards increasingly are implementing additional parameters aimed at building diversity and ensuring participation by individuals from traditionally underrepresented communities. Boards benefit from including individuals with a broad mix of leadership skills, backgrounds, experiences, and perspectives. Developing and maintaining a board skills matrix can help organizations track the skills, characteristics, and capabilities of individual directors and the board overall.
Committee structures also vary by organization and by industry. In general, organizations should avoid having an unwieldy number of committees. Rather, committees should focus on vital functions, such as finance, governance, or development.
Typical Roles & Responsibilities Within the Board
What does a board of directors do? The fundamental responsibility of a board of directors, whether it serves a publicly traded corporation, privately held business, or nonprofit organization, is to provide leadership and oversight so the organization can reach its goals and achieve its mission.
The specific responsibilities of a board depend on the organization’s needs. Organizations should ensure that every board member understands exactly what’s expected of them.
Detailed job descriptions can help define board member responsibilities and give new directors the clarity they need to feel comfortable expressing their views and collaborating as a team. For most organizations, board directors serve as a fiduciary or legal advisor, providing sound ethical and legal governance and financial management policies. They’re also often tasked with fundraising and advocating for the organization.
Other board of directors’ responsibilities might include:
- Hiring and setting compensation for the CEO/Executive Director
- Adopting policies to address conflicts of interest
- Shaping the organization’s culture
- Improving the organization’s strategic focus and effectiveness
Directors with certain roles on the board have additional responsibilities. Here are some common board roles and the responsibilities associated with each:
- President:Leads the board and usually works most closely with the CEO or leader of the organization; may also be referred to as the board chair
- Vice President: Responsible for specific assignments from the board president and will assume the role of president when the president isn’t available
- Secretary: Prepares and maintains important records, such as meeting minutes and committee reports
- Treasurer: Monitors finances and may work with other board members to develop financial plans
It should be noted that corporate board secretary duties have changed dramatically over the years. There also are specific obligations for board members who serve on various committees. For example, it’s common for a community bank board of directors to have a committee focused on loan approvals.
Serving on a board of directors is very much a team sport, but a board can fall apart without high-caliber, highly committed individuals. It’s a collective effort, but everyone has a vital role to play. Use this sample of a board member job description to customize one for your organization, then reserve time each year todiscuss board member recruitment with an eye toward helping the entire culture evolve.
What Is a Traditional Board Director, and How Is the Role Changing?
A traditionalboard directortypically works professionally as a leader in the same field in which the organization is focused, or in a related field. Some organizations even ask certain employees to serve on theboard as part of their job description.
Serving as aboard directorrequires much more than simply showing up for board meetings. The people you choose for your board must alsounderstand governance, think strategically, and lead by example. They should know when to engage on the most important issues, and how to engage in the right way.
An annual PwC survey of corporate directors found that nearly half of respondents (47%) feel that one or more of their fellow directors should be replaced. Some common complaints included directors being reluctant to challenge management, overstepping their roles, having negative communication styles, or perceived diminished performance due to age.
Organizations needboard directorswho embrace change and new technologies, and who show a willingness to consider others’ ideas.Having a diverse board with a varied set of professional experiences, age ranges, and economic backgrounds can help organizations gain new perspectives and insights to serve their communities in more impactful ways.
Typical Traits of a Successful Board Director
Before becoming a director, individuals should ask themselves what kind of board member they want to be. According to theAssociation of Governing Boards of Universities and Colleges’ (AGB’s) Principles of Trusteeship, good governance depends on clarity, communication, and collaboration. It also requires a substantial time commitment, a concerted effort, and a willingness to adapt as circumstances change.
AGB outlines three fundamental functions for successful board directors:
- Understand governance:Provide insights and oversight, but don’t manage or implement. Work with your organization’s CEO, leadership team, or subject matter experts to better inform your board’s decision-making processes.
- Think strategically:Ask questions, probe for more information, and challenge assumptions at board meetings. Try to keep your organization’s long-term sustainability in focus, while still addressing near-term needs.
- Lead by example:Model your organization’s ethics and values with high integrity, and say something when you notice a particular action fails to live up to those standards.
A successful board director often brings a different perspective to the discussion, or approaches the problem from a new angle. This gives the entire board food for thought and paves the way for collaborating on a true “team” win.
According toThe Rotman School of Management’s report,Not-for-Profit Board Diversity & Inclusion: Is it Essentially Window-Dressing?, new board recruits should be onboarded individually, so they can learn about the organization and share their own interests and pursuits. The report found that lived experiences can contribute hugely to a diversity of board perspectives, and that sound diversity and inclusion principles typically align with good governance.
Executive Board Director vs. Non-Executive Director
When considering whether to name anexecutive director or directorto your board, just remember they’re both responsible for the same liabilities and legal duties. As fiduciaries, both positions are required by law to place the best interests of the company or organization ahead of their own interests.
An executive director usually works as an employee, providing management of day-to-day business activities. They’re tasked with keeping the rest of the board accurately informed about management and operations.
Anon-executive directorhas no responsibility for the daily management or operations of the organization, and provides a more independent and objective opinion. They’re more likely to challenge, question, and monitor the CEO and the senior management team.
Dr. Randall S. Peterson, Professor of Organizational Behavior at London Business School,makes a compelling casethat boards largely succeed or fail based on the effectiveness of their board chairperson. His tips for what makes a great board chair can also apply to any board director, such as:
- Foster a culture that’s truly inclusive, where people feel like they belong
- Create an atmosphere where multiple voices are heard and opinions are valued
- Develop leadership skills, such as emotional intelligence, patience, and diplomacy
- Model the values you wish to encourage in the team
- Become digitally aware to modernize the board-meeting process
- Establish trust through managed conflict and effective decision-making
- Listen more than you speak, and remain open-minded to new ideas
How to Get on a Board of Directors
As board membership becomes more accessible to a broader range of candidates, now is the time for business leaders from nontraditional backgrounds and underrepresented groups to join corporate or nonprofit boards and work together to create impactful changes.
According toone study of Fortune 250 companies, a board that includes people with varied life experiences and perspectives creates a successful team that better understands opportunities, anticipates challenges, and takes action. A diverse board not only includes people with differing views and life experiences, but also different ages, races, genders, educational backgrounds, and professional qualifications.
Companies and nonprofits become more effective and often gain a competitive edge when they operate with oversight from a synergistic board that combines its members’ various skills and experiences into run a well-oiled machine.
Here are 3 tips for finding nontraditional candidates to join your board:
- Broadly define potential candidates.Don’t limit your pool based on personal connections; a more holistic approach produces better board members.
- Identify skills gaps by charting the board’s competencies across a skills matrix.Look for overlap, and analyze any gaps that need to be filled.
- Conduct annual evaluations.Roughly half of all companies now ask their directors to appraise each of their fellow directors.
The answer to the question “What is a Board Director?” has changed in recent years, as more people from nontraditional business backgrounds join boards.Harvard Law School Forum blogger Susan Muckmakes the following recommendations for how to become a board member:
- Promote yourself to build your brand.Speak up about your previous contributions, and broadcast your interest in serving on a board.
- Nurture relationships by networking with existing connections.Look for common interests and keep all contacts current.
- Develop a specialty.Organizations often seek board directors with expertise in areas such as digital technology, customer insights, artificial intelligence, and cybersecurity.
- Join organizations.If you believe in a cause, volunteer on a nonprofit board to gain the experience and skills that might be valued on a for-profit board.
- Seek the right opportunity.Serving on a board takes time and commitment; look for an organization where you can make a meaningful contribution.
Why Boards of Directors Need Board Management Software
Boards of directors are vital to all types of organizations, but too many boards continue to rely on outdated technology and paper-based processes to accomplish their goals. Such clunky and inefficient processes can stand in the way of a board (and the organization it serves) reaching its full potential.
Consider board books, for example. Countless hours are spent compiling and printing board books, and in many cases they’re not distributed until shortly before the board meeting. This means a good chunk of the meeting must be spent reviewing the books, rather than making crucial decisions.
Organizations increasingly are moving toward digital-first board processes using board management software, such as OnBoard. Board management software serves as a central hub for board-related communications and gives board directors a secure source of truth for everything they need to be effective in their roles.
Having the right board portal eliminates inefficient communications and processes that can bog directors down. They can access everything they need, whenever they need it, from a single location. This decreases friction and frees boards up to spend their valuable time on more important matters aimed at moving their organizations forward.
Ready to take your meeting agenda and minutes to the next level? Request a demo or a free trial of OnBoard, the board intelligence platform that empowers boards and committees to hold more effective, informed, and uncomplicated meetings.