tailieunhanh - PORTABLE MBA IN FINANCE AND ACCOUNTING CHAPTER 15

15 THE BOARD OF DIRECTORS. 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. | 15 THE BOARD OF DIRECTORS 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 exchange. 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 corporation in which the chief executive officer CEO is also the controlling shareholder 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 510 The Board of Directors 511 company has problems the owners need to know about these problems so that they can take any necessary remedial action. A corporation may have many shareholders American Telephone Telegraph Corporation has million. Individual shareholders obviously can t govern the company directly moreover most of them are engaged in their own pursuits and will not give much if any time to governance. They elect people to act for them. This is the board of directors. SIZE AND COMPOSITION OF