ShmoopTube

Where Monty Python meets your 10th grade teacher.

Search Thousands of Shmoop Videos

See All

Finance: How does a board of directors function? 27 Views

Share It!

Description:

How does a board of directors function? Public companies, as well as some private corporations and non profit groups, have a board of directors. Usually odd in number for voting periods, a board of directors is intended to serve as a fiduciary for shareholder and management interests and votes on corporate policies on their behalf. Inside directors usually are directors who also are executives of the company. Outside directors are often successful professionals in related fields who are paid to participate in board meetings and draw upon their expertise to advise the company.

Language:

English Language

Subjects:

Transcript

00:00
Finance a la Shmoop! How does a board of directors function?
00:06
All right, well structurally, the Board of Directors has really one function, after
00:11
it is elected by a vote, of the common shareholders, of the company. The board of
00:16
recruits, then hires the CEO and that's not necessarily easy. Because, most
00:23
of the good CEOs, you actually want, are already ensconced in high-paying jobs, [man being offered money]

00:29
from which they have to be bought away. Picking the right CEO, is the big
00:33
roulette wheel bet, the board makes. Is the CEO good, or bad, or ugly and yeah the
00:40
CEO can be all three. After being hired the CEO then hires everyone else, more or
00:46
less. In a public company, the board divides into committees, to advise and
00:51
oversee many of the little processes. There's audit committee people and
00:56
nomination and government committee people and Compensation Committee people.
01:01
In large companies there are also, often subcommittees, that focus on narrow
01:05
things, like technology, or politics and lobbying and, or the environment. You know, if [oil drill with man and duck]
01:11
you work for a big polluter. Well another big element of board value-add, revolves
01:16
around, strategy. Are we the high cost, high value company, or are we the low cost,
01:23
Walmart desk provider? That is, are we Pirates of the Caribbean, or are we La La
01:29
Land? What other strategic issues are we fighting? How do we get into China and [world map]
01:34
Russia and get out of Somalia? So yeah, that's strategy. How does the
01:39
board cover its primary obligations, in providing a fiduciary duty, to the
01:45
shareholders, who elected them? Is the board governing fairly and equitably?
01:50
Yeah, how do they do that? Well they just basically pay attention, right? Are
01:54
company policies racist, or gender biased, or ageist?
01:59
Which is illegal everywhere, except Silicon Valley in Hollywood. Are all the [director and actress]
02:04
right controls inspected, like audit, hiring, firing, policies and our
02:09
companies casual Fridays, have they gotten to just to casual? Is that a board item?
02:15
Yah, alright, next meeting. So yeah, that's the gist, hire the CEO, form
02:19
committees and of course they're also in charge of bagel Thursdays. [man in panda suit, bagels falling from sky]
Full Transcript