The-Accountant-Jan-Feb-2018

Governance
The board of directors is primarily
tasked with providing oversight to the
executive management team for the
purpose of protecting the interests of the
company’s shareholders. This is its mandate
and this is its purpose, everything beyond
this is ancillary as the board is responsible
for making sure that the shareholders
investment in the company is protected.
Whether the company is a private entity
or a publicly traded company, the purpose
of the board remains the same. However,
how the board is developed and managed
varies greatly between public and private
companies. In a public company there
are strict legal requirements that dictate
how/when the board is elected, the terms
of service for those board members, and
the standard requirements of the board of
directors on a continuous basis. Private
entities have much more control over how
the board operates and the extent of its
power.
The challenge as it relates to developing
a strong board of directors is to always
remember the primary purpose of the
board (as stated above); if this is done it
becomes much easier to determine how
the board should be built, how it should
be managed, and how it will serve both the
company and its shareholders.
In this article we are primarily focused
on developing a board of directors for
private companies with a small-medium
roster of equity and financial shareholders,
while many of these principles are viable
for public companies, it should be noted
that companies that are or are seeking to
go public should review the legal statutes
for board development and management
before moving forward.
In the world of private companies there
are few legislative bodies that are overtly
tasked with protecting the interests of
those shareholders, for this reason most
investors are more tentative in making
these private investments because the risks
are much greater. Public companies have
public requirements that present them in
a transparent light, and in some manner,
help to mitigate the risk associated with
the investment through the presentation
of information. Private companies don’t
have the same requirements (although
they do have some in most developed
nations) and it is critical that investors feel
that they are able to trust the management
team, but most importantly they need to
feel as though there is a group that is there
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