What is the composition of the board of directors?

The size of the board and the process for electing directors are laid out in either the articles of incorporation or the bylaws. There are generally few requirements in these governing documents with regard to who can be a director of the corporation. Corporate governance documents generally place few or no requirements with regard to the skill, knowledge, or general competence of board members. There are, however, numerous laws and organizations that control the composition of boards of directors of public companies.

What laws affect the composition of the board of directors?

 These laws and organizational rules include:

• the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank),
• the Sarbanes-Oxley Act of 2002 (SOX), the Securities Exchange Act of 1934, as amended (34 Act), rules of the U S Securities and Exchange Commission (SEC), and the listing standards of the NYSE and NASDAQ.

What is Director Independence?

The most notable requirement of boards imposed either by law or by exchange rules is that a majority of directors on a board be independent. The word independent is defined to mean directors who are not officers of the corporation or officers or directors of any parent or subsidiary companies. As such, independent directors are generally chosen from the executive ranks of boards of non-related public or large corporation. Another specific requirement regards corporate committees. Most notably, corporate committee members (particularly special committee members) must be disinterested in their assigned tasks. The objective behind requiring boards to have special committees is to isolate interested directors from controlling the internal workings and decision-making of the entire board. 

What are Director Committees?

The required types of committee include:

• Director Nominating Committee - Charged with nominating directors for election to the board by shareholder vote;
• Corporate Audit Committee - Coordinates the process of audit by external auditors; and
• Executive or Director Compensation Committee - Tasked with developing compensation packages for officers and directors.

Related Topics

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• Berle-Means Thesis 
• Corporate Governance Rating Definition
• Who are the members of a corporation?
• Corporate Charter
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• Common Stock
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• What is the role & rights of Shareholders in the corporation?
  
• Shareholder Democracy Definition
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• Amotion
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• Proxy Statement
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• Activist Investor
• Overview of Board of Directors
• Board Decision Making
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• What is the composition of the board of directors?
• Chairman of the Board
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• Inside Director
  
• Outside Director
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• Independent Outside Director
• Budget Committee
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• Codetermination (Foreign)
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• What standards govern manager actions?
• Chief Executive Officer (CEO)
• Chief Financial Officer
• Chief Information Officer (CIO)
• Chief Investment Officer (CIO)
• Chief Legal Officer
• Chief Operating Officer
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• What are the primary state and federal corporate governance laws?
• What is the role of the state in corporate governance?
• What is the role of Securities Laws in corporate governance?
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• Sarbanes-Oxley Act (SOX)
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• Corporate Monitors
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• Holding Company
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• Flip In Poison Pill Definition
  
• Voting Poison Pill Plan
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• Legal Lockup Defenses?
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• Kamikaze Defense
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