I recently met with one of my clients for the annual business meetings of their company. As I visited with different members of the Board of Directors before the meeting, I grew curious about the level of understanding that many of them had regarding their roles as directors and shareholders.
As I observed the participants during the meetings, it became quite clear that they had minimal experience with Corporate Formalities and overall Corporate Structure. During the lunch recess I inquired with two or three of them as to whether or not they understood the differences between being a director and shareholder and what their responsibilities were. I was met with blank stares and the ultimate responses were "I have no idea". I then asked if they had ever read the Corporation's ByLaws, and the answer was a unanimous "No".
While this may seem unlikely to many of you, it is actually quite common. There are a number of businesses that consist of Directors and Shareholders that have no real understanding of Corporate Structure and the Corporate Formalities that are required of them (this is especially common in the world of Nonprofit businesses).
It is my opinion that many people view serving on the Board of Directors of a Corporation, whether it be Forprofit or Nonprofit, as a privilege and a great opportunity. While that certainly can be true, it is also an enormous committment that comes with great responsibility. Sadly many people accept this responsibility without doing the necessary due diligence to understand their fiduciary responsibilities to the organization, nor the substantial liabilities that they inherit when they accept the position.
If you are serving on a Board, or considering that prospect, my recommendation is a simple one. Request all of their Corporate documents so that you can understand the structure of the Corporation, what the ByLaws require of you, and the fiduciary responsibilities that you will be accepting...
Good article Kent. You make some very valid and important points about the importance of understanding both the benefits and the imposed obligations of serving on a Forprofit or Nonprofit Board.ReplyDelete