Board of Directors

ABOUT PAROON

Paroon Chadha

Co-Founder & Chief Executive Officer

ABOUT FRED

Fred Coulson

Founder and Managing Partner of Five Elms Capital

ABOUT BOB

Bob Nye

General Partner, JMI Equity

ABOUT KRISHNA

Krishna Potarazu

Partner, JMI Equity

ABOUT MAC

Mac Williams

Principal, JMI Equity

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What exactly is a board of directors? What are their key responsibilities?

Oftentimes, people associate the phrase “board of directors” with publicly held companies with shares listed on a major stock exchange. While it’s true that public companies depend on the leadership of a board of directors, they’re not the only type of organization that does.

Instead, boards of directors are the nucleus of many different types of board-led organizations, including public corporations, financial institutions such as banks and credit unions, non-profit organizations, and professional associations — just to name a few.

Board of Directors, Defined

The phrase “board of directors” is often used interchangeably with other terms including “board of trustees,” “board of governors,” or even simply “the board.” Regardless of the chosen terminology, the board of directors is a group of individuals either elected or appointed to provide leadership and oversight to the organization it serves. The board is responsible for ensuring an organization is always moving towards achieving its mission and goals.

Every public company is required to have a board of directors to represent its shareholders. However, many privately held companies and nonprofit organizations also have a board of directors in place.

Board Elections

At publicly held corporations, board members represent shareholders. So, it’s probably not surprising that board members are elected by the shareholders themselves.

However, at other types of organizations, board members can either be elected or appointed; it all depends on the type of organization, industry regulations, and geographical location.

Once elected or appointed, board members typically serve on the board for a predetermined term. The length of a term varies from organization to organization, and it’s typically spelled out within 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, avoiding 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.

In addition, many organizations also set term limits for their board members. Term limits are an important way to ensure the makeup of the board continues to meet the evolving needs of the organization it serves.

According to a report from BoardSource, 54% of non-profit boards have both terms and term limits. The most common term length for non-profits is three years, and the most common term limit is two terms. For corporate boards, the NACD’s recommended term limit is 10-15 years.

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Size and Structure of Boards of Directors

There’s no “one size fits all” size and structure for boards of directors. Instead, the size and structure depends on the needs of the organization — and is often spelled out in the organization’s bylaws.

According to a report from the Conference Board, the median board size of companies in the Russell 3000 is 9. For companies in the S&P 500, that number is 12. On the other hand, per a report from Russell Reynolds Associates, the average size of a non-profit board is 30 members.

When it comes to board size, it’s important for organizations to strike the right balance. 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.

Each organization has different roles within its board of directors. Some common leadership roles include president, vice president, secretary, and treasurer.

Board of Directors Responsbilities

The fundamental responsibility of a board of directors, whether it serves a publicly traded corporation, privately held business, or non-profit 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 needs of the organization. Organizations must make it a priority to ensure that every board member understands exactly what’s expected of them.

Directors with certain roles on the board have additional responsibilities. Here are some common roles within a board of directors — as well as the responsibilities associated with each:

President: This person heads up the board and may also be referred to as the board chair. They’re typically the director that works most closely with the CEO or leader of the organization.
Vice President: This director is always ready to assume the role of president in instances when the president isn’t available. They may also be responsible for specific assignments from the board president.
Secretary: This member is responsible for preparing and maintaining important records, such as meeting minutes and committee reports.
Treasurer: A board’s treasurer is responsible for monitoring finances and they often work with other board members to develop financial plans.

In addition, many boards have various subcommittees that are focused on different initiatives. Membership in those committees also carries with it certain obligations. For example, it’s common for a community bank board of directors to have a committee focused on loan approvals.

What Happens at a Board Meeting

As the name suggests, board meetings are formal meetings of the board of directors that take place at regular intervals — for example, quarterly, bi-monthly or twice a year. Regular attendance is required of all board members.

Board meetings are typically led by the board president (or the board chair). During the meeting, board members have the opportunity to collaborate – either in-person or, more recently, via video conference. Issues are presented and discussed, tasks are assigned, and decisions are made.

The secretary of the board (or someone appointed by the secretary) takes notes during the meeting – referred to as meeting minutes. Meeting minutes serve as the official record of what decisions were made, who attended the meeting, and anything else important that happened during the board meeting.

Why Boards of Directors Need Board Management Software

Clearly, boards of directors are important to organizations of all types. But oftentimes, boards rely on outdated technology and paper-based processes to accomplish their goals. These clunky processes stand in the way of a board (and the organization it serves) reaching its full potential.

Take, for example, board books. Countless hours are spent compiling and printing board books, and oftentimes, they’re not distributed until the board meeting. That means a good chunk of the meeting must be spent reviewing the books, rather than making decisions and taking action.

Increasingly, however, organizations are moving toward digital-first board management by using board management software, such as OnBoard.

Board management software gives board directors a single, secure source of truth for everything they need to be effective in their roles. And, it serves as a central hub for all board-related communications.

With the right board portal, directors are no longer bogged down by inefficient communication and processes that are all too common on boards of directors. Instead, they can access everything they need, whenever they need it, from a single location. This decreases friction and frees boards up to make decisions and take impactful action to move the organization forward.

Ready to upgrade your board’s effectiveness with OnBoard the board intelligence platform? Schedule a demo or request a free trial.