It’s likely that you’ve come across the phrase “Board of Directors” (‘BoD’) when it comes to running a company. A Board of Directors provides unique and crucial guidance to larger companies. In this article, we’ll explain all you need to know about BoDs.
Key points
- Public companies need to have at least 3 Company Directors
- A Board of Directors manages the governance and also the strategic direction of a company
- Directors can be both involved in the day-to-day operations of the Company and external to the Company’s operations
- The ideal Board contains members from a variety of different professional backgrounds
Board of Directors
Boards exist for a range of different entities. For a public company, it must have a Board of Directors. For an incorporated association, a management committee may exist to comprise a Board. Finally, a public sector organisation or statutory authority may have a Board of Directors or an equivalent appointed council.
What does the Board of Directors do?
A Board of Directors looks after the an organisation’s overall governance, strategic direction and management. It also will help to ensure that the organisation performs in accordance to its goals and objectives. To find out more information about the general duties of directors, you can also check out this article.
Because this article seeks to explain how a BoD works, let’s take a deeper dive into specifying what their responsibilities are. There are two main aspects:
Performance
On an external level, the BoD formulates strategies that will enable the organisation to meet its performance goals. Internally, a key responsibility for the BoD is to make policy that drives them to perform in line with objectives.
Compliance
On an external basis, the BoD is in charge of ensuring accountability for the organisation as perceived by the public. Internally, the BoD will similarly monitor and supervise the organisation from a top management level perspective.
Who can be a Director?
A Board of Directors should include people from a wealth of different backgrounds and expertise. Each director can benefit the board because of their specific skillsets, knowledge and experiences from varying areas of business.
Election Process
If the organisation is a public company, the BoD is elected by the shareholders. This often applies for smaller companies as well, however the methods of election do vary.
Removal Process
Removals can occur if a Director fails to meet their obligations or where they overtly break any rules. A Director cannot remove another Director from a public company. However, shareholders can remove a director through a resolution or simply not re-electing them.
Relevant Laws
Each director has duties, legally imposed upon them by the Corporations Act 2001 (Cth). A company director can remove other directors for a Pty Ltd company. However, this all depends on the terms of the Company Constitution. To learn more about how this works, read this article. Other boards may also enlist the help of an Advisory Board. An advisory board is most relevant to those beginning to run their business. It involves individuals who have experience in the corporate world who then provide their advice to help manage the business.
How much does a BoD get paid?
What are the standard remuneration packages for members of a BoD? This varies depending on what entity the BoD exists for. According to a survey by the McGuirk Management Consultants, in 2020 the average salary for a business’ BoD Chair was $132,000 and non-executive directors (NEDs) $82,000. For not-for-profit organisations, NEDs earned $40,000 and Chairs $20,000, if they were in fact paid at all. Other factors influencing BoD remuneration also include the size of the company and the existing earnings of the director.
Conclusion
As has been explained in this article, a BoD is an overseeing committee of experienced business individuals who are recruited to advise a particular entity. This entity may be a public company, or even a not-for-profit organisation . Each director brings to the table their own skillsets and experiences, and are elected in an official manner. If you have further questions about what a Board of Directors does or establishing your own, it may be worth contacting a business lawyer.
