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How to Set Up a Board of Directors

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If you’re establishing a Board of Directors, you’ve probably already been through the process of forming an advisory board. Now you need to formalize the relationships among board members. Some of your advisory members may become Board members; others will not. A Board of Directors is a legal entity responsible to its owners—shareholders in the case of a private company, the public in non-profit corporations. In each case, your Board members have legal and fiduciary responsibilities and are bound by corporate laws of your state and the bylaws of your corporation (See References 1).

Decide on the number of members that will serve on the Board. This may or may not have already been decided when you filed Articles of Incorporation. Smaller corporations usually will operate with fewer Board members---five to seven is typical. Larger corporations normally have more Board members to reflect the growing need for committee work, investor relations and fund-raising. It's not uncommon for large corporations to have 20 or more Board members (See References 2).

Finalize any unanswered bylaws questions regarding Board membership, like length of service, compensation, officer positions and member duties.

Create a list of potential Board members. Private firms may be indebted to certain investors to serve on the Board (See References 3). Non-profits must consider fund-raising issues. The CEO must surround himself with people capable of performing nuts-and-bolts tasks like accounting and human resources duties. Consider the make-up of your shareholders and their desires and preferences. they ultimately will elect the Board members. Scrutinize a prospect’s passion for the job and her available time to commit to the position. Decide what your company needs at that time. A start-up company has different requirements than General Motors (See References 4).

Screen candidates. Hire a firm to perform background checks, confirm education credentials, investigate job histories and review personal issues. This will weed out candidates who, on the surface, seemed ideal and can save time, money and embarrassment. Carefully consider and then reconsider including friends and family members as candidates.

Interview candidates. As owner or Chief Executive Officer (CEO), you must determine the right blend of vision, passion, business knowledge and acumen that will best aid your company in prospering. Use the interview process as an opportunity to set expectations and explain in detail a Board member’s duties and responsibilities, including the number, days and times of meetings. Don’t sugar-coat the job description. You want people who are committed to the company and are willing to put in the necessary time and effort (See References 5).

Make an offer. Compensation, like most job offers, should not be an issue. The position isn’t their primary or full-time careers.

Tip

“Figureheads,” or high-profile Board members, are more common in non-profits, and with good reason. Much of what a non-profit Board member does is raise money, and well-known public figures often make successful fund-raisers, regardless of their knowledge of the particular industry.

Warning

Advisory boards have no legal authority or obligations. As such, you may find that some advisory board members have no interest in serving on a Board of Directors and assuming legally-bound duties.

About the Author

John Kibilko has been writing professionally since 1979. He landed his first professional job with "The Dearborn Press" while still in college. He has since worked as a journalist for several Wayne County newspapers and in corporate communications. He has covered politics, health care, automotive news and police and sports beats. Kibilko earned a Bachelor of Arts in journalism from Wayne State University.

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