Most nonprofit and for-profit enterprises are governed by individuals who oversee enterprise strategy and governance without getting too deeply involved in day-to-day management.
These individuals comprise “boards” that can range in number from a handful to more than a dozen. Though vital to organizations’ operations, boards of directors often operate under the radar, and their activities are frequently cause for confusion or misunderstanding among those not well-versed in corporate governance.
So, what is a corporate director? What do boards of directors do? What skills should corporate directors possess, and who’s a good fit to serve as a director? Read on for the answers.
What Is a Corporate Director?
A corporate director is an individual charged with overseeing the activities of a corporation. In the for-profit world, directors are generally chosen by shareholders in corporate elections, often through a proxy voting process.
A corporate director does not have to be employed by the company they oversee. Many are not. In fact, boards with a mix of employee-directors and nonemployee-directors may be seen as more independent — and thus stronger — than boards dominated by individuals with close company ties.
The ideal corporate director is a professional with years of experience in a variety of supervisory and executive roles, often in different industries and in organizations of varying sizes. However, strong boards feature directors from a wide range of personal and professional backgrounds, rather than a relatively homogeneous set of retired executives.
Corporate directors increasingly have formal credentials, such as NACD Directorship Certification, which program graduate Nygina Mills describes as “advancing the highest standards of boardroom excellence.” NACD Directorship Certification or similar credentials may be prerequisite for certain director roles.
What Do Corporate Directors Do?
Corporate directors oversee corporate strategy and policy at a high level. Depending on the structure of the boards on which they sit, their specific roles may include:
- Directly supervising the organization’s top executive, generally the president, CEO, or (more commonly in the nonprofit or government space) the executive director
- Hiring and/or terminating any employees they directly supervise
- Setting strategic direction and communicating it to the executive team
- Weighing in on corporate policies or governance matters
- Staffing governance committees responsible for financial auditing, executive compensation, high-level human resources policies, and other functions
- Providing advice and counsel on operational issues that fall under their areas of expertise (a particularly important function for directors of early-stage enterprises)
Being a corporate director is not a full-time job, but it does require a significant commitment of time and effort. It’s customary but not universal for corporate directors to be compensated for their work.
Inside vs. Outside Directors
Corporate directors can be internal or external, also known as “inside” or “outside.” Most corporate boards have a blend of inside and outside directors.
Inside directors may be current or recently retired employees or shareholders in the company they oversee. Outside directors generally have no employment relationship with the organization, but may have ownership interests in or other connections to the enterprise. Independent outside directors must have no material interest in the organization, period.
Regardless of their classification, corporate directors are legally bound to place the interests of the organization’s shareholders ahead of their own and, more generally, to avoid conflicts of interest that might set up difficult decisions along these lines. Known as the fiduciary standard, this is a cornerstone of effective corporate governance.
Final Thoughts
Being a corporate director is a solemn responsibility, but one that virtually any capable adult can handle. Prior industry experience is helpful but not required. Many corporate boards welcome diversity of opinion and thought — including, perhaps, yours.
