The process of establishing a board can be an arcane mystery to those who haven’t had much experience with the business or non-profit worlds. What do they do? Why do companies need them? How are people chosen to sit on them?
We’ve answered some of these questions here before, but that last one is important. How exactly are people chosen to sit on a board or committee? Let’s have a look at this process through the eyes of each group who’d be forming the committee.
Publicly Traded Companies
The board of directors of a public company are simply elected by stakeholders (ie. anyone who supports the company, such as shareholders, employees, suppliers, etc.) during an annual meeting. The company’s bylaws would determine who exactly is eligible for election (or re-election).
Privately Owned Companies
Typically, the board of a private company oversees it’s own composition. In smaller ones (like startups) they may not even have one, or only have a few members. Board members are primarily chosen for a private company because of their ability to generate revenue in some way - whether that’s through industry knowledge, networking, or any other number of ways.
Founders will often sit as members for a time before outside parties become part of the board - this is when the company’s initial bylaws and articles of incorporation are written, which define things like who can sit on the board, for how long, and what exact powers the board will have.
Similarly to private companies, the bylaws of a not-for-profit will determine exactly who is eligible to sit on the board of the company, and the current board will choose and induct whoever they feel will work best.
The key difference is that where a private company is looking to generate revenue, a not-for-profit looks to further it’s mission to assist a particular community. There are many smaller, grittier legal differences between private companies and not-for-profits, so if you’re trying to establish one or the other it’s always best to consult with your state government’s relevant legislation.
School P&Fs, Sport Club Committees, Independent Associations, and other types of governing bodies will typically operate in a similar manner to a not-for-profit. Committee members are chosen according to the organisation’s bylaws and candidates are elected by the sitting board for their ability to further the organisation’s mission.
Other groups, such as subcommittees, might be formed within any of the above types of company or association by volunteers from that organisation in order to complete a particular task, and are disbanded once that task is complete.
A board of directors might sound like an intimidating, powerful group. But when you break it down, these are just people who can get things done, and have proven that to an organisation that trusts them.
Anyone can sit on the board of a group they’re passionate about, with the right timing, so why not reach out and give it a go? It’s hard work, but it’ll be one less arcane mystery out there in the world.