Who sits on the Board of Directors?
A mixture of inside directors and outside directors.
Who Sits on the Board
The board of directors is composed of individual men and women elected by the company’s shareholders for multiple-year terms–usually on a rotating system so there is not a complete board changeover.
Board composition typically includes a mixture of inside directors and outside directors (also referred to as a non-executive directors), who are not employees or stakeholders in the company. Inside directors and outside directors help balance each other on a company’s board.
Inside directors typically include a company’s top executives employed by the company such as the CEO, (COO), and the (CFO). Because of their specialized knowledge about the inner workings of the company, inside directors can be a key element in a company’s success.
Outside directors are not involved in the day-to-day operations of the company. These board members are elected individuals who have legal, and corporate governance rights and duties when it comes to voting on key company decisions. Outside directors receive an annual retainer fee in the form of cash, benefits, and/or stock options, while inside directors do not.
Inside directors and outside directors both have a fiduciary duty to the company of the board they sit on. They are expected to always act in the best interests of the company.
Public companies listed on The New York Stock Exchange and Nasdaq are required to have a majority of independent directors and include independent directors on key committees, such as the audit committee.
We recommend company boards should have an independent majority. An independent majority on the board is more likely to consider the best interests of shareowners first. It also is likely to foster independent decision-making and mitigate conflicts of interest that may arise.
A Board’s composition should be in perpetual motion. As companies’ strategies change and their business models evolve, board composition needs to be routinely evaluated.
According to Leading with Intent, the most successful boards are thoughtfully composed as it relates to skill sets, leadership styles, and diversity of thought and background. They understand the leadership needs of their organizations and seek out board leaders who can bring the expertise, passion, and external leadership that they need both now and into the future.