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15
THE BOARD
OF DIR ECTORS
Charles A. Anderson
Robert N. Anthony
This chapter describes the nature and function of the board of directors,
which has the ultimate responsibility for governing a corporation. It describes
the board’s activities in normal meetings, in strategy meetings, and in special
situations, and it describes the work of three important board committees: the
compensation committee, the audit committee, and the finance committee.
We focus on large corporations whose stock is listed on a securities ex-
change. These corporations must conform to regulations of the Securities and
Exchange Commission. Most of the discussion is also relevant to boards of
smaller corporations.
WHY HAVE A BOARD OF DIRECTORS?
Every corporation is required by law to have a board of directors. The board’s
legal function is to govern the corporation’s affairs. However, in a small corpo-
ration in which the chief executive officer (CEO) is also the controlling share-
holder, the CEO actually governs and the board acts primarily as an adviser.
When a corporation grows to a size where it needs outside capital, it may
go public by selling shares of stock (as explained in Chapter 14), and the board
then represents the interests of these shareholders. The shareholders, who are
the owners of the corporation, have a say in the way their company is run.
They expect to receive regular, reliable reports on the company’s operations.
If the company is profitable, they probably expect to receive dividends. If the