What is a Board of Directors?

Public companies cannot do without proper management structures in their day-to-day activities. One of the most widespread and popular management units is the board of directors. Many companies in the modern world are gradually approaching the revision of the role of the Board of Directors in the company’s life, but it is possible to observe some division of opinions on the importance of this management structure in the company’s life. Others, on the contrary, argue that the Board of Directors is the most efficient corporate governance model, which may be equally well used in public and private companies. In our article we would like to describe the modern vision of the board of directors in terms of business.

 

What is a board of directors: the traditional view

Without going into details of the corporate lexicon, the board of directors may be defined as the main managing structure in a company. As a rule, this form of corporate governance is typical for public companies, and even the legislation requires all public companies to have a board of directors for more effective management.

A board of directors is necessary to manage a company in order to create an effective mechanism for protecting the rights and interests of ordinary shareholders, as well as to implement the following management principles into the work of the company:

  • Transparency – all processes and use of assets should be properly reflected in corporate records;
  • Openness – so that the company is not afraid of its reputation in the market;
  • Accountability – the board of directors should be accountable to the company’s employees and shareholders in order to avoid abuse of its position.

However, recent trends in the world of corporate governance show that many private companies are also beginning to use the corporate governance model with the help of the board of directors.

 

Why is having a board of directors in company management so important?

In order to maximize the benefits to a company’s development, it is necessary to embed governance bodies with democratic beginnings in its governing structures. The board of directors as a traditional model of corporate governance fits this requirement best. Thanks to the introduction of this form of management, the following goals can be achieved:

  • Create the most useful mechanism to protect the interests of the company;
  • Maintain comprehensive control over the assets the company has the right to dispose of;
  • To take an active part in the strategic planning of the company’s development in the short and long term;
  • Oversee the establishment and payment of cash benefits to shareholders;
  • Take care of the welfare of the company and equip it with the basic resources for its daily tasks and future development.

By having a board of directors as part of the company’s management mechanism, the desired heights of development can be achieved in much less time.

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