350 ENTREPRENEURSHIP
ment community for expansion funds—insiders tend to dominate. When venture capi-
tal has been used to support growth, venture capitalists often dominate the board.^38
Members of the board, as trustees of the shareholders’ interests, constitute the broad
policy-setting body of the company. They advise and mentor the founders and the TMT
in the execution of their strategy. Specifically, the board exercises its power in seven
areas:- Shareholder Interests. In representing shareholders, the board is accountable for the
new venture’s performance. It must approve the audited financial statements and
all reports to the shareholders. The board must approve any changes in the ven-
ture’s bylaws and get shareholder approval as well. The board is also responsible for
all proposals made to shareholders and approves the annual report prepared by top
management. - Financial Management and Control. The board sets and declares all dividends. It
sets all policies regarding the issue, transfer, and registration of company securities.
It approves any financing programs: The TMT cannot seek financing that changes
the status of current shareholders without board approval. The board, along with
the shareholders, also approves the selection of the outside auditors recommended
by top management. - Long-Range Plans. The board advises top management on its long-term strategy. It
does not devise strategies, but it can mold the venture’s future using the recommen-
dations of the top managers. The board establishes broad policies regarding the
direction and means of growth. It must approve all acquisitions and mergers, sub-
ject to further approval by the shareholders. - Organizational Issues The board elects its chairperson, the firm’s president, and
(based usually on the president’s recommendations) the other officers and top man-
agers of the company. It writes and approves the chairperson’s and president’s job
descriptions. It establishes their compensation levels, stock options, and bonuses,
and it subsequently reviews their performance. From recommendations of the pres-
ident, the board also approves the appointment, termination, promotion, and com-
pensation of the other managers who report directly to the president. - Operational Controls. The board approves the annual operating and capital budgets.
It reviews forecasts and makes inquiries about variances from forecasted amounts.
It can request information and special reports from top management, which it may
then use to carry out its other fiduciary duties. If performance falters, the board
may recommend a reorganization, restructuring, or even voluntary bankruptcy to
protect the shareholders. - Employee Relations. The board approves the firm’s compensation policies, pensions,
retirement plans, and employee benefit options. It also reviews the behavior of
employees and top managers to ensure that they act in accordance with the high-
est ethical, professional, and legal standards. - Board Internal Operations. The board is responsible for its own internal operations.
Based on the recommendation of the CEO and president, the board members
approve their own compensation and expense accounts. They appoint subcommit-