Corporate Governance

• Corporate governance used to refer to the practices used to safeguard the interests of all of a company's stakeholders, including shareholders, creditors and employees. However, modern corporate governance refers to the division of power between management, the board of directors and shareholders in order to further the best interests of the corporation (most courts equate these best interests with shareholder value). A modern U.S. board of directors has a broad mandate to guard shareholder interests, and often may not make any decision that would negatively impact shareholder value.
  
  

General Board Functions

• Directors' specific duties can be set and altered by the corporation's articles of incorporation and bylaws, or by subsequent shareholder agreement. However, a board is generally supposed to supervise management (including setting management's compensation); undertake planning for the corporation; and review a corporation's internal controls in order to ensure that the corporation is in compliance with the law. Directors are also supposed to ensure that the corporation is making good use of its assets. Boards are also generally empowered to split into separate committees for specialized functions.
  
  

Meetings

• A board of directors should hold regular meetings, and may also hold special meetings if warranted by events affecting the company. At the meeting (or without a meeting if the directors give written, signed consent), directors discuss and vote on decisions affecting the company's future. Each director is supposed to review the available information and make the decision that will best advance the interests of the shareholders.
  
  

Audit Committee Requirement

• The Sarbanes-Oxley Act of 2002 has established a requirement that each publicly-traded company have a specialized audit committee as part of its board of directors. This audit committee must be composed entirely of independent directors (meaning those who are not employees and do not hold a stake in the corporation). The role of this audit committee is to keep a close eye on the corporation's accounting procedures in order to ensure that accounting is not being used in any illegal or unethical way.
  
  

Ownership vs. Control

• The board of directors is now a supervisory entity, with ultimate approval power for important corporate decisions; non-employee directors do not usually get involved with the day-to-day operations of the corporation. In the modern board, many of the directors are not shareholders; they are corporate managers and executives. Most shareholders' only representatives are the board itself. This modern separation of ownership from effective control of the corporation has the potential to impact the extent to which the board can fulfill its role; directors' interests are may be more closely aligned with those of management than those of the shareholders.