Board of Directors
A Board of Directors is the elected governing body of a public corporation, legally responsible for overseeing management, setting strategic direction, approving major transactions, and protecting the long-term interests of shareholders.
The board is the apex of corporate governance. In the US system, shareholders elect directors annually (or on a staggered schedule) at the company's annual meeting. The board, in turn, hires and fires the chief executive officer, approves the annual budget and capital allocation plan, oversees risk management and internal controls, and sets executive compensation through the compensation committee.
US stock exchange listing standards — NYSE and Nasdaq rules — require that a majority of a listed company's board consist of independent directors, meaning directors who have no material relationship with the company beyond their board service. Specific committees, including the audit committee, compensation committee, and nominating/governance committee, must be composed entirely of independent directors.
The audit committee is responsible for overseeing the integrity of financial reporting, the external auditor relationship, and the internal audit function. At least one member must qualify as an audit committee financial expert under SEC rules, meaning they have accounting or financial management experience sufficient to assess the company's financial statements.
Board size varies by company. S&P 500 companies typically have 9 to 13 directors. Larger boards tend to reflect the complexity of a business and the need for diverse functional expertise (finance, technology, industry knowledge, legal, government relations). Governance researchers have found an inverse relationship between board size and responsiveness to shareholder concerns, though causality is difficult to establish.
Board diversity — by gender, race, ethnicity, and professional background — has become a major governance focus. California enacted laws mandating minimum female and underrepresented-minority representation on boards of public companies headquartered in the state, though some provisions have faced legal challenges.