How is board of directors chosen

This refers to the board as a group and focuses on defining the rules of the group and how it will function. The rules that the board establishes for the company should be policy based. In other words, the board develops policies to guide it own actions and the actions of the manager. The policies should be broad and not rigidly defined as to allow the board and manager leeway in achieving the goals of the business. Another responsibility of the board is to develop a governance system.

The governance system involves how the board interacts with the general manager or CEO. Periodically the board interacts with the CEO during meetings of the board of directors. Typically that is done with a monthly board meeting, although some boards have switched to meetings three to four times a year, or maybe eight times a year.

In the interim between these meetings, the board is kept informed through phone conferences or postal mail.

So the board has to make sure the assets of the company are kept in good order. The board of directors has a monitoring and control function. The board is in charge of the auditing process and hires the auditor. It is in charge of making sure the audit is done in a timely manner each year. A board of directors is a collection of individuals trying to operate as a group.

Functioning as a group is something many people are not comfortable with. So each board evolves with its own culture. Each culture is dictated by the backgrounds of the individuals on the board. However, there are several governance models of how a board of directors can function. Examining and choosing the right model is important because it will impact the success of the value-added business. Below are four governance models.

For example, business professors, former employers, or startup CEOs will be valuable advisors as you look for a potential Board to work on. Choose a company to which you have something to offer. A successful board will be assembles of diverse members, each with their own strength.

Many nonprofits and companies will be looking for an individual with financial experience, or a degree in finances. Corporate social-media experience is also currently in high demand. Use your website findings to tailor your company search. Research current board members. Looking into the existing directors—on a single board or across several—will give you a glimpse of what degrees, experience, and credentials are common among directors.

If any directors are approaching retirement. If you could network with any of the directors, through mutual friends, a work associate, or other means. Part 2.

Meet with existing board members. Find out who is already on the board of directors, and arrange a meeting with one of these people. A face-to-face meeting will allow you to directly state your case for an appointment as a director. Perhaps you already know someone who knows someone who knows one of these people. How can I pursue this opportunity and show my qualifications?

Find out detailed information about the board and company. This will help you assess how you can present yourself and your skillset to maximize your appeal to the other directors.

Ask for information regarding the current number of directors, how often new board members are brought on board, and the management style of the board. Do you know if the organization is interested in taking on a new board member? Attend networking events. Events are open to members of the public, and you may be able to meet with or learn about multiple board members on a variety of board types.

State why you would be a valuable member of the board. Explain what you can bring to offer the current board. If the company serves a large portion of the country, you may wish to set yourself up as a regional representative, or a representative of a community that is not currently represented on the board.

Part 3. Do not rely on a search firm to find you a director position. Search firms are companies that find directors to serve on specific boards. While their services sometimes work in the other direction as well—finding a board for potential first-time directors—this approach is less common.

Ask for an appointment as a board member. I care about the mission of the organization, and think that my skills and experience will make me valuable. Prepare your CV in anticipation of a meeting or interview. Tailor your resume so you can present yourself as a strong candidate for the specific board you would like to serve on. Highlight your leadership experience and your commitment to developing whatever industry or community the business or nonprofit works in. This will indicate that you will be valuable to the board, and not duplicate the skills of an existing board member.

Explain your potential value as a director. In searching for various definitions, I came across one offered by the OECD in April that is generally consistent with many others: "Corporate governance is the system by which business corporations are directed and controlled.

The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance.

In these days of excessive litigation, the words corporate governance take on new meaning. In the past, directors may only have paid lip service to the notion of protecting the interests of all shareholders and other stakeholders i. Class action lawsuits, which have been very popular in the USA are now becoming more common in Canada. Such class action suits permit aggressive lawyers to sue negligent corporate directors on behalf of a class of litigants, e. It is a common misconception that because companies are incorporated they, and persons associated with them, have limited liabilities.

Not so. Not only are directors accountable to the company, but they are also the "real people" against which other parties may make claims of a financial, or even criminal, nature. Although corporations generally indemnify their directors against legal actions and often take out directors' liability insurance as a hedge against such actions, directors may nonetheless not be fully protected. This personal legal exposure or risk is not reduced for directors who may simply be serving as directors on behalf of a shareholder.

This situation may arise when, for example, a corporate shareholder e. Remember that shareholders have no liability or responsibility other than appointing the directors who then assume all the responsibility.

Good corporate governance begins with a board charter , i. It will spell out the board's responsibilities and mandate so that all parties know what is expected. Such a charter will evolve as a company grows and matures. Typically, a director is or should be a shareholder in the company.

Directors are appointed, i. The number of directors of a company is determined by a special resolution of shareholders, which number can be changed only by a shareholder vote although boards can fill vacancies and make minor changes to board composition. In general, shareholders will appoint themselves as directors as is the case for small companies or will vote on a slate of nominees proposed by any shareholder s. Certain shareholders, by virtue of a shareholders' agreement or voting trust, may have the right to appoint directors to a board.

The directors are accountable to all shareholders and must act in the best interests of the company. Furthermore, directors are not protected by those that appoint them. Additionally, directors have a legal obligation to ensure that a company is operated in a proper, legal, good-corporate-citizen style. If a company's products blow up in the face of a consumer, or if a company fails to remit taxes, it is the directors that are held liable and they may be personally sued.

For this reason, many companies will subscribe for liability insurance and will also indemnify directors against such actions. But, the directors may still be exposed. In a recent, spectacular, case involving Canadian Airlines, the entire board resigned from office because the airline was on the verge of financial disaster in which case the directors would jointly and severally be responsible for employee wages and taxes owing by the airline!

The time commitment of a directorship should not be underestimated. Even though your board may only sit formally once each quarter, as a director you must know what is going on all the time.

You can never use the excuse that you weren't told about something. You will likely also be asked to serve on board committees compensation committee, audit committee, executive committee, etc. A good chief executive will use his board wisely - seeking counsel and advice regularly and will keep his board fully informed on major issues.

In the case of public companies, a reputable board comprised of objective, "outside" directors is seen to be a plus in the eyes of investors. These outside directors, often referred to as the "independent" directors because they are independent of management are supposed to hold management accountable for corporate actions and serve in the best interests of the company.

Often, shareholders' interests are at odds with those of management. For example, paying huge management bonuses or being excessively generous with stock options may be good for managers while reducing shareholder value. Having a slate of independent directors shows that the company has good leadership and at the same time, that these leaders are willing to assume the potential personal liabilities required to make the company successful.

Directors are very powerful. They often do not even understand the extent of this power. A director, dissatisfied about some management action, could call a board meeting to deal with the matter.

He or she needn't wait for the next scheduled meeting. A director may sign important legal documents on behalf of a company making onerous commitments on behalf of that company. Finally, a company's officers, especially the President and CEO, are appointed by, and accountable to, the directors. Directing is not the same as managing. Directors make sure that managers are doing the managing and that the company has recruiting the necessary talent for this purpose.

Directors hold management accountable. It is a good practice to have directors require that management produce regular updates on progress, especially in the early years. For startups a weekly reporting system is not uncommon. In the case of young companies, directors often become quite involved in day to day matters and sometimes they assume a part-time management role as well. Directors work with management to approve budgets, business plans, senior job descriptions, compensation, policies, and financial statements.

With respect to job descriptions, it is advisable to draw up some "terms of reference" for a board which clearly articulate not only legal duties and responsibilities but also any other expectations. In situations where you are a substantial shareholder in a company, it makes sense for you to be a director. What is substantial? The owners and founders of a company usually comprise its first board of directors.

It would be very unusual for a key person not to be a director. If asked to be a director of a company, you have to weigh the pros and cons very carefully. You should first ask why you are being nominated. Is it because of your reputation or because of certain skills and contacts you may have?

What potential risks and liabilities are you assuming by agreeing to serve on the board? To what extent can the company indemnify its directors against claims? What is your reward for taking such a risk? In this regard, stock option plans, or even better - stock purchase or ownership plans - are very attractive inducements and can be very effective, especially in cases where one has been invited to serve on behalf of other shareholders without necessarily having a personal equity stake.

Directors are often paid a fee in addition to any stock appreciation compensation they may have. Some companies pay a fixed amount per board meeting, others pay a monthly or annual retainer.

A retainer, regardless of amount, is likely the best because, in principle, directorship is a full-time, 7x24, job. A potentially problematic situation may occur if you are asked by a shareholder to serve on a board on that shareholder's behalf. For example, if you are an employee of a shareholder, i. Although liability insurance may reduce the potential liability, it will not eliminate it.