You may be asking yourself, what exactly is a board of directors?
“A board is simply a group of people who are legally appointed with the responsibility to govern an organization”
A board of directors is a committee that oversees a larger organization or company. The board is responsible for making important decisions, appropriately representing stakeholder interests and keeping business running smoothly.
In the case of non-profit organizations, board members represent stakeholders, the people who the organization directly serves, or those who have a “stake” in the performance of the organization. However, for-profit organizations have board members who represent shareholders, the people who own stock in the company. Boards of directors, for both types of companies ,are accountable for working alongside of management to reach both long-term and short-term goals. To do so, the board oversees the executive hiring, compensation, CEO termination, stock issuance, dividends, corporate policy, governance and internal controls.
Boards typically have two types of directors. Inside directors serve as members of the board but also as employees of the company, meaning they perform a dual role. This could mean they are an executive or direct stakeholder in the company. Inside directors are well-equipped to make more personal decisions for the company. Outside directors, on the other hand, serve only as board members, providing an external perspective. Because they are independent individuals selected to serve because of their experience and expertise, they meet a very high standard and their input is often considered more objective. This is a reason why compensation and audit committees are governed by outside directors rather than inside directors. From the 2023 U.S. Spencer Stuart Board Index, 47% of S&P 500 boards undergo evaluation from independent directors.
“In summary, shareholders own, directors control and management runs the corporation”
Today there are approximately 5,500 public companies in the U.S. listed in the D&B Hoovers database and 5,500 private equity firms, with over 78,024 portfolio companies according to Private Equity Info. Roughly 350 private equity firms exist that own over 7,300 portfolio companies that are large enough to generate $159K or more in annual board compensation, which is our minimum compensation threshold for finding independent seats on for-profit boards. There are also over 20,000 Hedge Funds, Mutual Funds and Real Estate Investment Trusts (REITs) in the U.S. These entities are generally not public but can generate independent board seats, as they are comprised of public money and have a fiduciary responsibility to their investors.
Overall, there are more than 20,000 board seat openings per year that fall within our compensation parameters. There is no mandatory size on individual boards of directors. The average board size is 7 to 12 members with 5 to 7 committees but boards can range from 3 to 31 members. An ideal size would be an odd number, which eliminates ties in voting.
