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Board of Directors Analysis
The NASD will implement new Rules in the next year which will require outside board membership in order to remain a public company. Companies obviously cannot choose to ignore the new rules. At worst, a company that does not have the appropriate directors and audit committee composition faces being booted off the exchange. As a result this 3 page paper was drafted to assist companies to develop companies in complying with the new rules. Introduction to Board of Directors Analysis The NASD will implement new Rules in the next year, which will require outside board membership in order to remain a public company. Companies obviously cannot choose to ignore the new rules. At worst, a company that does not have the appropriate directors and audit committee composition faces being booted off the exchange. As a result this paper was drafted to assist companies to develop companies in complying with the new rules. The Basics. As a matter of law a corporation must have a Board of Directors. The directors are elected by the stockholders and have the responsibility as the representatives of the stockholders to oversee corporate operations. In the United States a Director in his capacity as a director does not have the power to sign contracts or commit the corporation legally. The Board elects the officers, who are responsible for the day to day running of the corporation and who have the power to sign contracts under provisions of the bylaws, corporate law and specific Board authorization. There is no limit on the number of directors which a corporation can have. For instance, a Delaware corporation can have as few as one director. A Massachusetts corporation needs only one director if there it has only one stockholder, two directors if only two stockholders and three directors if there are three or more stockholders. Beyond the Law. The more interesting question is “who should be on the Board?" A company with a Board of Directors consisting of management and family or friends is not only a real "red flag" situation but also an obstacle to remaining a publicly traded company. Usually management has its nose so in the day-to-day short term firefighting trenches that it can easily miss the big picture forces which can make or break the venture. Having an impartial outside director, as opposed to the only "outsiders" being friends or family members, makes the situation better because it provides a third party review instead of a perspective that "everything is going well". It also insures that director relationship won’t degenerate into interpersonal issues which are unrelated to the business. A Director’s Job Description. What do you look for in a Director and how do you find them? First, develop a complete job description for each client outside directors’ search. Next identify directors that have relevant industry experience, general business experience, growth company experience, financing expertise, strategic contacts, financial community credibility and many more attributes and help determine which is most critical for the particular business in question. Not every director will have all of the desired attributes and not all of these attributes may be needed at the same time- some are more important in the short term while others might be more critical over the longer run. However, do not invite someone on the Board who will not be making a sustained long term contribution to the company. [continued...] Want to know more? Download the White Paper "Board of Directors Analysis" for just $9.95. |
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