Most of us have seen or heard a TV show, series, or movie with a Board of Directors, or "Board" for short, that made important decisions which affected the outcome of a business. Think of Tommy Boy starring Chris Farley and David Spade. Tommy Callahan Jr, "Tommy Boy" (played by Chris Farley), had to sell a certain amount of brake pads for his dad’s auto company or the Board of Directors would have sold the company. So, Tommy Boy went out to do the impossible – he sold half a million brake pads in a short amount of time, and saved the company from being sold by the Board of Directors.
In Tommy Boy, the auto company was a corporation called Callahan Auto. In corporations like Callahan Auto, a Board of Directors is accountable to the shareholders of the corporation. The shareholders are the actual owners of the corporation and vote for the individual directors that make up the Board of Directors. In turn, those individual directors must act in the best interests of the shareholders. If the directors on the Board fail to act in the best interests of their shareholders, directors on the Board can be held liable for civil and even criminal damages.
But if someone simply mentions the term "Board of Directors," you’ll likely need more information. That’s because there are Boards of Directors for all kinds of different companies and organizations, including: (i) public corporations, (ii) private corporations, (iii) government agencies, (iv) universities, (v) non-profit organizations, and (vi) other businesses or organizations.
In this article, we’ll focus on Boards of Directors on corporations (but many of the same principles apply to Boards of Directors on other organizations or agencies). We’ll explore what you’re likely see in a Board meeting, how Boards function, how Boards are elected, some modern legal doctrines that are supposed to govern Boards’ operations, and the faces behind the decisions of some of the most well-know public corporations.
Next, we’ll go over where a director fits in the corporate structure.