for the rest of us non-lawyers
Disclaimer: The contents of these pages are offered as general principles, but not as legal opinions. Statutory law and entity policy on board structure, lines of authority and board discipline vary widely. Some of the comments here may not be applicable, or may be wrong in some situations, depending on the regulatory and organizational environment. When in doubt consult competent legal counsel. See the further disclaimer at the end.
Definitions and basic concepts
The board (of directors) of an organizational entity is a group of elected or appointed individuals who collectively act as the legal face of the entity. This is true regardless of whether the entity is incorporated as a legal person under statute law, or is an unincorporated association or trusteeship.
A board is the interface between an organization’s stakeholders and the operational entity.
The board is responsible to:
- ensure that the entity satisfies all legal and/or financial obligations
- safeguard the collective interests of all the entity's stakeholders
- govern the board itself
- formulate and maintain the entity's mission, vision, values, purposes, and goals,
- devise a governing structure for the entity
The board governs itself by establishing:
- the means for its own continuity via a method for selecting new board members,
- rules of order for conducting its businesss
- a chair and possibly a vice-chair.
NOTE: As the board serves the entity, so the chair serves the board. The chair is far more severely constrained by organizational structure and policy than other board members, as (s)he must be diligent to maintain neutrality and not compromise the office by participating in any disputes. A chair should avoid speaking on issues altogether, or at least until it becomes clear that the issue is not contentious,
- a calendar of corporate meetings, and a means to provide meeting notice of meetings and agendas to meeting attendees and stakeholders, as applicable (this usually does not apply to unincorporated organizations).
- a binding code of ethics/conduct for its members
- a disciplinary mechanism for rebuking, correcting, or dismissing those who engage in misconduct,
- standing and ad hoc subcommittees to which specific board tasks are delegated (e.g. executive, legal, finance, discipline)
The board establishes organizational governance by:
- writing the organization's constitution and by-laws
- presenting governing documents to the stakeholders and/or legal authorities as needed for approval
- writing a job description for hiring and delegating operational management authority to a COO (Chief Operating Officer; usually the president)
- holding that COO accountable for:
- operating the entity within the mission, vision, values, and goals framework
- reporting on the satisfaction of legal obligations
- developing and presenting to them for approval a budget and reporting on compliance with same
- developing and presenting to them for approval short term operational plans goals, and reporting on compliance with same
- selecting or recommending to the stakeholders an auditor
Depending on the nature of the entity, the board may directly hire and supervise one or more additional Chief Officers (financial, information, etc.) Also, sometimes the President is the CEO and a Vice-President is designated COO.
Depending on the nature of the entity, board members may be elected in whole or part by stakeholders. Some may be appointed by the board itself, or by some other body.
- A board usually has eight to sixteen members
- Some mechanism should be in place to ensure diverse skills are represented on the board, including, where possible, legal and financial expertise
- Board members must be at arm's length from each other
- The chair is usually also designated CEO (Chief Executive Officer) to sharpen the distinction between executive functions and operating ones
- The president is always a full board member
- If the president is the CEO, then the COO is a full board member
- Other COs attend regular sessions as observers, reporters, and resources
- All employees are excused during in camera evaluations of management performance
- Care must be taken to avoid excessive interlocking with boards in similar spheres of operations, as the law may regard them as a single entity
In order to satisfy its obligations to be the legal face of an entity, a board of directors always adheres to certain fundamental rules. Each of these requires ome explanation, and has a separate page.
Depending on the governance model and the sector in which the entity operates, there may be additional governing principles or special considerations. These are collected here.
Readers may also wish to consult a separate article written for the Northern Spy technology column, which is located here.
Nothing on this site should be taken as offering or even suggesting to offer legal advice. The principles here should be regarded as common sense advice, no more. When formulating codes of ethics and conduct or disciplinary procedures for board members, legal advice from competent counsel may be necessary. This site slights corporate governance somewhat because most corporations of any size retain legal counsel either from an independent law firm or their own legal staff.
The author of these pages offers the comments and summaries here as best advice from over forty years of board membership, attendance as a fiduciary or key employee, close observation of board-governed associations, or consulting with same. His experience includes boards for corporations, societies, unincorporated associations, and post-secondary educational institutions.
If you spot errors or omissions here, let us know.