How to Build a Corporate Board of Directors

To build an effective board, review your corporation's rules and procedures, and create a recruitment strategy.

In a corporation, the board of directors makes major financial decisions and sets policies, while also representing the interests of the shareholders. Whether you're starting a new corporation or expanding your business, you should consider the size and duties of board membership (including the number of board members and term lengths), as well as your recruitment strategies. Because your board has a considerable amount of control over the direction and future of your company, the term length of its members and the direction of their recruiting efforts should be subjects of careful attention.

To build your board, begin with reviewing the laws of your state, your formation documents (such as your articles of incorporation), your bylaws, and your stockholders' agreements, all of which might provide the rules for board structure and the process for adding directors. You might also implement strategies to build an effective board, such as creating a recruitment committee, interviewing candidates, and conducting onboarding processes for new directors.

Board of Director Responsibilities and Duties

The board of directors is the corporation's governing body. While the officers and employees handle the day-to-day affairs of the business, the board oversees the operation and sets policies. To this end, the board's responsibilities include:

• electing officers (which might include a president, secretary, and treasurer)
• setting corporate policies (such as a non-discrimination policy)
• overseeing finances (including setting budgets and reviewing financial statements)
• declaring dividends (when and how much to pay shareholders)
• amending bylaws, and
• deciding on major decisions, like mergers or dissolution.

In making these decisions, the directors must represent the interests of the shareholders (the owners of the corporation) and act in good faith. In other words, directors must put the interests of the company over their personal interests, and exercise reasonable care by reviewing pertinent information before making decisions. For more information about directors' duties and responsibilities, see Fiduciary Responsibility and Corporations.

Determining Board Structure and Procedures

Review the laws of your state, your formation documents, your bylaws, and the stockholders' agreement to determine the structure and procedures for your board. State law might provide the minimum requirements for your board (such as at least three directors) and default rules that apply only when your bylaws are silent on an issue (for example, your statute might provide for 3-year term lengths). Some of the state or internal rules to check for include:

• the number of directors
• term lengths
• term limits
• qualifications for board members
• frequency of meetings, and
• the procedure for adding or removing directors (typically by a vote of the shareholders).

If your bylaws and formation documents do not address the above, and you want to get away from any default provisions, you can amend your bylaws.

Evaluating and Recruiting Board Members

When it's time to build or grow your board, consider your strategy for bringing on new members. If you already have a board of directors, they can create a nominating committee, which will be responsible for evaluating the current needs of the board, reviewing candidates, interviewing, and making recommendations to the shareholders. In a new company, the organizers will typically take on this task.

To start, consider the needs of your company and the expertise of your current board members. You might discover that your corporation has knowledge or experience gaps in one or more areas, such as legal or marketing. With this information, you can put together a list of desired qualifications, along with a description of the position. Next, you might contact people who currently work for the corporation, ask for referrals from board members and other trusted connections, or post the position to a job board.

Inside or Outside Board Members?

Your board might include inside directors (employees or shareholders) or outside directors (people who are not employees or shareholders), or a combination of both. Outside directors bring fresh perspectives and often have fewer conflicts of interest, while inside directors are more familiar with the day-in-day-out of the company's operations.

Check your bylaws and the stockholders' agreement to determine the process for voting for new board members. The documents will likely explain the voting rights for shareholders, which might be per capita (one vote per shareholder) or per share (one vote per share). Also review whether the shareholders can vote by mail, electronically, or in-person at a shareholder's meeting (nowadays, you might amend your bylaws to allow for virtual meetings). If the agreement and the bylaws do not provide the rules for voting, follow your state's default rules.

Onboarding New Directors

The final step in building your board is completing an onboarding process for your new members, which will allow them to effectively participate in board meetings. You might create materials to educate them on your company's history, finances, their duties; your expectations; and plans for the future. You should invite them to review board meeting materials, such as meeting minutes and budgets.

At this time you should also remind new directors of your conflict of interest policy, including when and how they must disclose financial interests and recuse themselves from voting on matters in which they have a vested interest.

​​​Yoel Molina, Esq. (AKA “Mo”)

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