Board of directors : definition

In relation to a company, a director is an officer of the company charged with the conduct and management of its affairs. The directors collectively are referred to as a board of directors. Sometimes the board will appoint one of its number to be the chairman of the board.

Theoretically, the control of a company is divided between two bodies: the board of directors, and the shareholders in general meeting. In practice, the amount of power exercised by the board varies with the type of company. In small private companies, the directors and the shareholders will normally be the same people, and thus there is no real division of power. In large public companies, the board tends to exercise more of a supervisory role, and individual responsibility and management tends to be delegated downward to individual professional executive directors who deal with particular areas of the companies affairs (such as a finance director, a marketing director, etc.).

Another feature of boards of directors in large public companies is that the board tends to have more de facto power. Between the practice of institutional shareholders (such as pension funds and banks) to grant proxies to the board to vote their shares at general meetings, and the large numbers of shareholders involved, the board can comprise a voting block that is difficult to overcome. However, there have been moves recently to try and increase shareholder activism amongst both institutional investors and individuals with small shareholdings.