This is a common question I hear when I speak or work with business owners about the differences between board members and officers. How are things allocated?
In a traditional model of corporate governance (which is now imparted in some LLCs depending on the LLC Agreement you use) there is typically a Board of Directors and officers. In a theoretical model, the shareholders of the corporation (or the members of the LLC) will select the directors, and the directors will, in turn, select the officers, so we have a hierarchical structure.
The shareholders should pick directors who they believe can follow the strategic direction of the company, and who will do what is best for the shareholders. Those directors, in turn, should pick officers who can execute those objectives set by the board.
The directors’ main focus should be strategic initiatives. What is the long-term direction of the company? What should or should not the company be doing? How should that all interface with each other?
The officers’ duties in answering to the Board are typically more tactical. How do I get through this week? How do I meet this customer’s needs? How do I keep this business moving forward?
The two work nicely together. There is power in the simplicity of this system with Boards and officers. They interface with each other and interplay, with one overseeing the other. If done carefully, with the right structuring and the right people, this can provide checks and balances throughout your company. Your Board members are being watched by your shareholders. Your directors are keeping an eye on your officers. Everyone has someone keeping them accountable.
What has been your experience with setting up your Board of Directors? Have you had some frustrations? How have you established things for you and your teams? Let us know in the comments below.
Each case is unique. Past results do not guarantee future outcomes. This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. FreeImages.com/photographer Tsu Nimh.
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