The Board of Directors is the statutory body of a joint-stock company, responsible for its strategic management and supervision of the company’s operations. What is the role of the chairman of the board, what responsibilities do the members have and what risks may fall on them? Find out in our article.
The Board of Directors is the statutory body of a joint stock company. As a statutory body, it ensures its management and representation externally. In common parlance, people refer to the board of directors as directors. The main task and purpose of the board of directors is to make strategic decisions and oversee the running of the company, all of which must be done in accordance with the interests of the shareholders.
The chairman of the board is then in a crucial position. He has special powers both in the management of meetings and in the representation of the company. The Board of Directors, headed by the Chairman, must respond flexibly to changing market conditions, innovation and competition. Not only for this reason, it is obvious that board members should be persons with sufficient expertise, but also with strategic thinking and leadership skills.
The legal regulation of the board of directors would be found in the Companies Act. This Act sets out the responsibilities of board members, their duties and the possibilities of modifying their powers in the company’s articles of association.
However,the Corporations Act is not the only regulation to which the board of directors must refer. The constituent documents, such as the articles of association or service contracts, also play a role in governance. These may govern the specific terms and responsibilities of individual board members. Nevertheless, every company’s management must regularly monitor changes in legislation, as even minor amendments can have a major impact on the company’s operations. If you don’t want the hassle of keeping track of this, we are happy to take over the legal corporate agenda for you.
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There is no fixed number of board members, but usually there are three or more. These members have to be elected by the general meeting each time. Sometimes, however, the company may decide to give this choice to the supervisory board instead of the general meeting.
Both natural and legal persons may become members of the board of directors. The term of office is usually three years. The members of the general meeting must always vote on their decisions and their resolutions are recorded in the minutes of the meeting.
In some cases, a company may have a board of directors consisting of only one member. In this case, the decision of the sole shareholder takes place.
The office of a member of the board of directors shall cease upon resignation, removal or expiry of the term of office. Some companies have a strategy of regularly renewing the members of the board of directors. This is to bring new perspectives to the company and to avoid the risk of stagnation.
We should still look at whether there are any differences in the membership of state-owned enterprises compared to private firms. There is an even greater emphasis on transparency and public scrutiny in SOEs. Board members often have to go through a tough selection process, which in some cases can be interfered with by political factors. Yet no board member, regardless of the type of company, can do without expertise, ethics and long-term strategy.
The Chairman of the Board is a little higher up the ladder than the other members of the Board. He differs from them by his extended powers. The chairman of the board can chair a meeting, represent the company in public or sign important documents.
But at the same time, the chairman of the board has increased responsibilities, not only to shareholders but also to regulators and third parties. If you want to imagine the ideal candidate for chairman of the board, then you should see before your eyes a manager who is also a visionary who can steer the company towards long-term prosperity.
All board members are bound by the duty of care of a good steward. If they breach this duty, they could lose their own assets. In addition, they are liable for damages and bear criminal liability.
In order to minimise the risks that come with the high office, some board members take out D&O insurance (Directors and Officers Liability Insurance). This is a liability insurance policy that covers directors and officers for their decisions. The board of directors manages the company in terms of operations and finances, which brings with it many legal aspects. Thus, this insurance is one of the steps they can take to minimize the consequences of their actions and decisions.
Let’s start with the board of directors. It is in charge of the executive management of the company, so it runs the company commercially. It is about organizing and managing the day-to-day business operations. Then there’s the general meeting, which decides on strategic changes. And finally the supervisory board, which has a control function and makes sure that the board of directors acts in accordance with the law and the interests of the company.
Some companies opt for a so-called monistic management system, in which the functions of the board of directors and the supervisory board merge – instead of these two bodies, a board of directors is created. Of course, no corporate strategy can work successfully if the various bodies do not cooperate, communicate openly and support each other in their activities. It is therefore not three separate vessels, but an interplay of three components that is essential for the successful functioning of a company.
In this case, the general meeting comes into play again. It is the General Meeting that decides what remuneration the members of the Board of Directors receive. The remuneration for the board of directors is usually set out in the performance contract. They often include not only a fixed salary, but the board may also have so-called incentive components such as stock options and bonuses. The remuneration for the management board is usually higher than that for the supervisory board. The remuneration of board members should reflect their management function and their responsibility for the business management of the whole company.
Perhaps among the more subtle changes that boards have had to grapple with are the ESG (Environmental, Social and Governance ) guidelines . These are used to assess the non-financial performance of companies and are the criteria against which socially and environmentally responsible investors are judged. Thus, the board of directors must reflect the pressure for sustainability and social responsibility and integrate them into the company’s long-term vision.
Then there is digitalisation and cyber security. With these comes the need to implement new technologies while protecting sensitive data to prevent its misuse, not only by cyber-attack. Boards of directors thus have to address investments in IT infrastructure and security measures.
Then come various regulations and compliance. Companies have only just got to grips with GDPR and already GPSR has arrived. Legislation is constantly tightening and boards of directors have to deal with new accounting standards or antitrust rules, for example.
So, as you can see, the board is a major player in corporate governance and its members have a lot of responsibility. Entrepreneurs and board members need to know not only their responsibilities but also their rights. If you need advice, whether it be with a contract, legal advice or dispute resolution, contact our law firm. We will be happy to help you protect your business and guide it to long-term success.
The board of directors of a publicly traded company is the key body that provides strategic direction and oversight of the company’s operations in accordance with the interests of the shareholders. The chairman of the board plays a key role in this process and has extended powers in the management of meetings and representation of the company. Board members are responsible for the sound management of the company and the risks associated with their decisions, including the potential for recourse to their own assets. The legal framework for the functioning of the board of directors is anchored in the Companies Act and supplemented by the company’s articles of association. Regular monitoring of legislative changes and adaptation to new challenges, such as ESG directives or cybersecurity, is essential for the long-term prosperity of the company. If you want to make sure that your company is fully compliant with the current legal requirements, we are happy to take over the legal corporate agenda for you.
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