Board of Director Seats: Overview

You may ask, 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”

Board members of a non-profit organization owe responsibility to the stakeholders, the local community or those the organization directly serves, whereas the board members of for profit, publicly traded entities represent the interests of the stockholders. Together, the board and management strive to align the company’s long-term goals and vision with attainable short-term objectives through the work of committees, including hiring executives; establishing and monitoring compensation; determining CEO termination; approving stock issuance; declaring dividends; and establishing corporate policy, governance and internal controls.

There are two types of directors on a board: inside directors and outside directors. Inside directors are simultaneously members of the board and executives of the company, such as the CEO and CFO, thus performing a dual role. Conversely, outside directors are not executives at the company so their input is therefore considered more objective. They are independent individuals selected for their experience and expertise in relevant industry sectors. Compensation and audit committees are federally mandated to be governed by outside directors.

“In summary, shareholders own, directors control and management runs the corporation”

Today there are approximately 4,932 public companies in the U.S. listed in the D&B Hoovers database and 3,572 private equity firms with over 78,024 portfolio companies according to Private Equity Info. Roughly 350 private equity firms exist that own over 7,879 portfolio companies that are large enough to generate $120K 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 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. According to a study conducted by the Corporate Library, the average board size is 9.2 members, and most boards range from 3 to 31 members. It is believed that the ideal size is seven, which eliminates ties in voting.

Share This: