Part One: Introduction

Fundamentals are the foundation of any great person who has practiced and mastered the ability to perform and adapt basic techniques to any circumstance. In the business world, fundamentals are the qualitative and quantitative ability to manage and maximize a business, organization, or company’s foundation and finances. For a board of directors, fundamentals are essential in regulating their company and shareholders. Are your board of directors fulfilling their roles and utilizing their ability in the best possible way for the company? Continue reading to understand the basics and intricacies of board fundamentals and how they can boost your company’s success.

Many will first ask, “What is a Board of Directors?” And that’s a great starting question to a larger whole. They are a group of people who supervise the activities of a business, nonprofit organization, government agency, and any public company. They may go by names such as the board of directors and advisors, the board of managers, executive boards, central board, the board of trustees, the board of governors, and the board of managers. The creation of a board of directors was founded in the 17th-century Dutch pioneering institutional innovations in which the early economic history of the Netherlands created the first modern economy; these economic foundations would soon mirror our current board of directors model seen today. Later in the 19th-century, the articles of association that each company had would outline the division of power between directors and shareholders. In small companies, the board of directors and shareholders are the same people, meaning there are no power divisions. However, larger companies will separate the two to create a division of power regulated by the two.

This fiduciary duty to hold legal and ethical relationships with one or more parties would lead to an abundance of responsibilities that each board member follows. The goal of this article is to educate you, the reader, the entrepreneur, leader, CEO, director, and so on, about how you can best handle any situation with the proper fundamentals and knowledge of how a board of directors operates, and in turn, how the business world works.

Success is neither magical nor mysterious. Success is the natural consequence of consistently applying the basic fundamentals.” ~ Jim Rohn

What is a Board of Directors?

To better understand why you need a board of directors, we must first establish what a board of directors is.

When filing the articles for your incorporations, your state may require you to establish and maintain a board of directors. These requirements are defined in-depth in your state’s statutory corporation code and other corporate bylaws. It is essential to understand these before electing your board.

This elected group of internal and external members will represent your shareholder’s and management’s needs by acting as fiduciary. This board may meet regularly to create policies for the oversight and management of your company. Though every public company must have one, several nonprofit and private organizations choose to have their own board of directors.

Traditionally, board members in nonprofit organizations are volunteers and receive no compensation. Ideally, members serving a nonprofit board are not also hired in paid management positions; this better allows the board to focus on the organization’s goals and mission and the strategy that will get them there. Because a board of directors for a nonprofit has the added responsibility of overseeing all organizational activities and programs, they tend to meet more frequently than for-profit boards.

Your company or organization’s bylaws will set the privileges and powers of your board. Bylaws define the minimum or a maximum number of board members, how they are elected, and how frequently they will meet. This elected board may deal with hirings and firings, executive compensations, dividend and option policies, and assist in supporting executive tasks, ensuring proper management of resources, and creating goals.

Who Sits on a Board of Directors, and Finding Your Match

Your board should consist of both internal and external members from the management side and the shareholder side. This way, everyone involved in the company has their best interests fairly represented. It is vital that your board also includes an inside director. An inside director maintains the interest of not only any major shareholders but also necessary officers and employees. These perspectives are important and add value to your company as a whole.

If you are looking to join a board, it is vital to understand the difference between one that is for-profit — and one that is not. If you are looking for paid opportunities, a for-profit board is a direction you should find yourself looking in. Compensation will vary from board to board based on different factors, but you may be able to land yourself a role with substantial payment, especially with a larger corporation. If you are looking for a volunteer opportunity, a nonprofit board would be a great fit. On rare occasions, nonprofit boards may include some form of compensation, but it is not standard. While serving a nonprofit board, members are often expected to make donations and assist in fundraising.

To join one of these boards, you must be selected. Landing a spot on a for-profit board will always be more competitive than a nonprofit board. For-profit board members have stricter obligations and responsibilities towards their shareholders, who expect to see a financial return. Because of this, candidates for a for-profit board must show that they have the experience to deliver on that promise. They must also be fit for planning, managing crises, acquisitions, and any other specific skill sets the corporation desires.

To land a role on a for-profit board, a candidate must understand what the company is seeking; you should read the company’s annual proxy statement, as well as researching current board members. In addition, having a customized resume will show your strength as a prospective candidate and increase your chances. You should also inform those in your network. This way, you may get referrals and connections to other highly-ranked members.

Except for a few high-profile organizations, being selected for a nonprofit board is often much more manageable. You still may need a specific skill set, but the responsibilities will be different. As long as you show a genuine commitment to the organization’s cause and respective community, there is an excellent chance that you will meet the qualifications. However, it would help if you still asked yourself a few questions before involving yourself in the process.

Do your morals and personal goals line up with the organization’s cause? Can you offer skills or specific expertise that will help the organization in its mission? Will you truly be able to commit yourself enough to carry out all of your expected responsibilities as a member of their board? An excellent way to find these answers would be to learn about other board members and understand their expectations.

Sites like Indeed.com and LinkedIn are a great place to start your search; however, you may find better luck on more specific sites such as Boardsource.org, BoardProspects.com, Boardsi.com and Volunteermatch.org.

Board Fundamentals in Practice

We hope that you can apply this knowledge to any related field that may be related to a board of directors. If any of these fundamentals is lacking in your own board, Board Director’s Board Portal is ready whenever to assist you in giving the tools you need for your board to succeed.