The existence of a board of directors is essential for maintaining a company’s corporate governance. It sets strategic guidelines, oversees the executive management’s actions, and ensures decisions align with shareholders’ interests and the business’s sustainability.
According to the Brazilian Institute of Corporate Governance (IBGC), the board is the ‘collegiate body responsible for an organization’s decision-making process regarding its strategic direction. In addition to monitoring management, it acts as the guardian of the organization’s principles, values, social purpose, and governance system, being its main component.’ But how is a board of directors organized? This is what I will explain in this article.
To begin, it is important to know that its composition depends on the size, sector, and corporate structure of each institution. However, there are good practices and basic principles that apply to almost all cases, contributing to transparency, integrity, and risk reduction in management.
Regarding the number of members, boards typically have a minimum of three and a maximum of eleven directors. In large companies, it is common for them to have multiple members. In medium-sized organizations—such as growing family-owned industries, startups in the scale-up phase and companies with investment funds—they tend to be leaner, usually with up to seven members.
Typical terms last from one to three years, with the possibility of member reelection, and there should be clear rules for renewal or replacement. These should be outlined in the company’s bylaws or internal regulations, including periodic performance evaluations of directors, succession planning, approval of elections by shareholders through a general meeting, and ensuring partial rotation, which avoids disruptions and preserves institutional knowledge.
To ensure diversity within the board, it is important for members to have different skills, experiences, and profiles. Additionally, the presence of independent directors, with no direct ties to management, is often highly beneficial. This is because they bring a more impartial perspective free from conflicts of interest, enriching strategic debate and contributing to more balanced decision-making.
The board should have a chairperson responsible for leading meetings and ensuring their effectiveness. To avoid conflicts of interest, the chairperson 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 supporting committees, such as audit, ESG (Environmental, Social and Governance), finance, strategy, and people or compensation committees.
Board meetings should occur regularly, whether monthly, bimonthly, or quarterly. It is ideal for them to have a defined agenda, preparatory materials, recorded minutes, and be well-organized. Their primary functions should include defining business strategies and general guidelines; approving long-term plans, budgets, and relevant investments; overseeing executive management, especially the CEO’s performance; upholding corporate governance and risk management; and representing shareholders’ interests.
In summary, the organization of a board of directors is a fundamental pillar for good governance in any company. Well-defined structures, qualified directors, and transparent practices directly contribute to more strategic decisions, greater market credibility, and long-term sustainability. By adopting good practices in the board’s composition and functioning, the organization strengthens its ability to face challenges, innovate responsibly, and create value for its stakeholders.
