The existence of a board of directors is essential for maintaining corporate governance in a company. It defines strategic guidelines, supervises the activities of the executive board, and ensures that decisions are aligned with shareholders’ interests and business sustainability.
According to the Brazilian Institute of Corporate Governance (IBGC), the board is the “governing body responsible for the decision-making process of an organization regarding its strategic direction. In addition to monitoring the board of directors, it acts as the guardian of the principles, values, corporate purpose, and governance system of the organization, being its main component.” However, how is the board of directors of an organization structured? This is what I will explain in this article.
To begin with, it is important to know that the composition depends on the size, sector, and corporate structure of each institution. However, there are good practices and basic principles, which apply to almost all cases, contributing to transparency, integrity, and risk reduction in management.
Regarding the number of members, boards generally have a minimum of three and a maximum of eleven members. In large companies, it is common for them to be composed of multiple members. In medium-sized organizations – such as growing family businesses, startups in the scale-up phase, and companies with investment funds – they tend to be leaner, usually with up to seven members.
Typical mandates last from one to three years, with the possibility of members’ reelection, clear rules for renewal or replacement must be in place. These should be provided for in the company’s bylaws or in its internal regulations, including periodic performance evaluation of the board members, succession planning plan, approval of the election by the shareholders through a general assembly, and partial turnover guarantee, which avoids disruptions and preserves institutional knowledge.
In order to have diversity within the board, it is important that members have different skills, experiences, and profiles. Additionally, the presence of independent directors, without direct ties to management, is usually very beneficial. This is because they tend to bring a more impartial and conflict-free perspective, enriching strategic discussions and contributing to decisions being made in a more balanced manner.
The board should have a chairman, responsible for leading meetings and ensuring their effectiveness. To avoid conflicts of interest, the chairman should not be the same as the CEO (Chief Executive Officer). Within the organization’s structure, depending on the company’s size, there may be support committees, such as audit committee, ESG (Environmental, Social, and Governance) committee, finance committee, strategy committee, and people or remuneration committee.
Board of directors meetings should take place regularly, either monthly, bimonthly, or quarterly. It is ideal for them to have a defined agenda, prior materials, recorded minutes, and be well-organized. Their main functions should include defining business strategies and general guidelines; approving long-term plans, budgets, and significant investments; overseeing the executive board, especially the CEO’s performance; ensuring corporate governance and risk management; and representing the interests of shareholders.
In essence, the organization of the board of directors is a cornerstone for good governance in any company. Well-defined structures, qualified directors, and transparent practices directly contribute to more strategic decisions, increased credibility in the market, and long-term sustainability. By adopting good practices in the composition and operation of the board, the organization enhances its ability to face challenges, innovate responsibly, and generate value for its stakeholders.
