Board of Directors (BOD)

Definition

The term board of directors refers to a group of individuals that collectively oversee the activities of an organization. The powers and duties of an organization's board of directors will be found in its constitution and / or bylaws.

Explanation

A board of directors (BOD) is a recognized group of select individuals who jointly oversee the activities of an organization, which can be either a for-profit business, nonprofit organization, or a government agency. Publicly traded companies are required to have a board of directors. The BOD's powers, duties and responsibilities are determined by government regulations (including the jurisdiction's corporate law) and the organization's own constitution and bylaws.

The number of board members is typically an odd value, which usually ranges from three to eleven. The primary responsibility of the BOD is to make non-operating decisions on behalf of the organization or its shareholders. For example, the board of directors will not prescribe how to run a factory owned by a company, but they can determine if the company will merge with another. Additional duties typically include:

  • Approving the corporate strategy, major initiatives, and significant investments
  • Providing oversight of financial performance, including risk management
  • Approving succession plans for the company's senior executives
  • Nominating new board members (subject to election by shareholders)

In addition to attending meetings concerning the above duties, members of the board may also be asked to participate in various committees; providing oversight into audits, corporate governance, financial matters, compensation, and operations oversight. Finally, members of a company's board can be subdivided into two types:

  • Inside Directors: individuals that not only serve on the board, but are also involved in the day-to-day operations of the company. For example, the CEO of a company would be considered an inside director.
  • Outside Director: individuals that serve on the board, but have no meaningful roles in the company beyond their duties as a board member.

Related Terms

outside directorinside directorexecutive director