Board of directors
The powers, duties, and responsibilities of a board of directors are determined by government regulations (including the jurisdiction's corporate law) and the organization's own constitution and by-laws.In corporations with dispersed ownership, the identification and nomination of directors (that shareholders vote for or against) are often done by the board itself, leading to a high degree of self-perpetuation.Typically, the board chooses one of its members to be the chairman (often now called the "chair" or "chairperson"), who holds whatever title is specified in the by-laws or articles of association.Inside directors represent the interests of the entity's stakeholders, and often have special knowledge of its inner workings, its financial or market position, and so on.For example, for a company that serves a domestic market only, the presence of CEOs from global multinational corporations as outside directors can help to provide insights on export and import opportunities and international trade options.[12] This practice results in an interlocking directorate, where a relatively small number of individuals have significant influence over many important entities.[17] A board-only organization is one whose board is self-appointed, rather than being accountable to a base of members through elections; or in which the powers of the membership are extremely limited.In this capacity they establish policies and make decisions on issues such as whether there is dividend and how much it is, stock options distributed to employees, and the hiring/firing and compensation of upper management.These remunerations vary between corporations, but usually consist of a yearly or monthly salary, additional compensation for each meeting attended, stock options, and various other benefits.Tiffany & Co., for example, pays directors an annual retainer of $46,500, an additional annual retainer of $2,500 if the director is also a chairperson of a committee, a per-meeting-attended fee of $2,000 for meetings attended in person, a $500 fee for each meeting attended via telephone, in addition to stock options and retirement benefits.[23] Overconfident directors are found to pay higher premiums in corporate acquisitions and make worse takeover choices.The OECD Principles are intended to be sufficiently general to apply to whatever board structure is charged with the functions of governing the enterprise and monitoring management.[28] However, by 1906, the English Court of Appeal had made it clear in the decision of Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] 2 Ch 34 that the division of powers between the board and the shareholders in general meaning depended on the construction of the articles of association and that, where the powers of management were vested in the board, the general meeting could not interfere with their lawful exercise."[29] The new approach did not secure immediate approval, but it was endorsed by the House of Lords in Quin & Axtens v Salmon [1909] AC 442 and has since received general acceptance.The study also shows that companies often improve their corporate governance by removing poison pills or classified boards and by reducing excessive CEO pay after their directors receive low shareholder support.[40] However, in instances an individual director may still bind the company by their acts by virtue of their ostensible authority (see also: the rule in Turquand's Case).Greater difficulties arise where the director, while acting in good faith, is serving a purpose that is not regarded by the law as proper.The seminal authority in the United Kingdom in relation to what amounts to a proper purpose is the Supreme Court decision in Eclairs Group Ltd v JKX Oil & Gas plc (2015).[43] The case concerned the powers of directors under the articles of association of the company to disenfranchise voting rights attached to shares for failure to properly comply with notice served on the shareholders.[45] If so, the mere fact that an incidental result (even if it was a desired consequence) was that a shareholder lost their majority, or a takeover bid was defeated, this would not itself make the share issue improper.[e] Directors cannot, without the consent of the company, fetter their discretion in relation to the exercise of their powers, and cannot bind themselves to vote in a particular way at future board meetings.In Aberdeen Ry v Blaikie (1854) 1 Macq HL 461 Lord Cranworth stated in his judgment that: However, in many jurisdictions the members of the company are permitted to ratify transactions which would otherwise fall foul of this principle.In many countries, there is also a statutory duty to declare interests in relation to any transactions, and the director can be fined for failing to make disclosure.However, a more modern approach has since developed, and in Dorchester Finance Co Ltd v Stebbing [1989] BCLC 498 the court held that the rule in Equitable Fire related only to skill, and not to diligence.More recently, it has been suggested that both the tests of skill and diligence should be assessed objectively and subjectively; in the United Kingdom, the statutory provisions relating to directors' duties in the new Companies Act 2006 have been codified on this basis.These may include measuring worker pay ratios, linking personal social and environmental objectives to remuneration, integrated reporting, fair tax and B-Corp certification.][62][63][64] According to John Gillespie, a former investment banker and co-author of a book critical of boards,[65] "Far too much of their time has been for check-the-box and cover-your-behind activities rather than real monitoring of executives and providing strategic advice on behalf of shareholders".[56] At the same time, scholars have found that individual directors have a large effect on major corporate initiatives such as mergers and acquisitions[66] and cross-border investments.[67] According to the International Institute of Management, the rise in investor dissatisfaction, class-action lawsuits and shareholder activism has resulted in more attention directed toward the board of directors and the lack of corporate governance accountability.Shareholders' complaints include issues such as excessive executive compensation and passive participation (lack of proper governance) of the board members.
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