The board described below, for most A/E Firms, falls somewhere between the very professional board that public companies have, with their long lists of legal compliance concerns, and the more informal advisory board that’s more common in many small, privately held companies.
Major Areas For Board Focus
Boards in A/E firms have many powers and responsibilities that vary depending on their specific use and the goals of the firm. Although there is a great range of things your board may be asked to do and areas where they can provide input, nearly all boards are tasked with the following duties:
- Setting the firm’s mission
- Identifying the firm’s core values
- Policy setting
- Strategic, organizational, and business planning
- Recommending and approving significant transactions
- Business development, networking, and recruiting
- Staffing committees
- Management oversight
- Reviewing the CEO’s performance
- Setting CEO compensation
- Financial oversight
- Reviewing their own performance
If you are setting up a board for the first time, there is an additional set of duties the board should complete first, which includes:
- Adopt or ratify the bylaws that define the board
- Appoint a CEO
- Elect the initial officers
- Designate the corporation’s bank or banks
- Issue stock to initial shareholders
- Elect S-Corp status if desired
- Pay organizational expenses
- Authorize any buy-sell agreements, leases or other material contacts.
Some of these tasks may be transacted on paper only and most won’t apply to a firm that’s been in business for a while and is simply altering the structure or finally instituting a formal board. For example, if you’re the CEO of the firm forming a board for the first time, the board won’t need to appoint you to your position and probably will also not need to elect initial officers. But the board should officially adopt the bylaws and see that all their initial financial duties are fulfilled.
Drafting and Adopting Bylaws
Bylaws are the official documentation of how a firm is to be run and operated. Bylaws, also called corporate governance guidelines, aren’t usually filed in the state, but rather are kept as an internal document that acts as a sort of manual for the board. In most firms, the bylaws function as the playbook for the directors, officers, and shareholders in a company and will often spell out how most corporate governance tasks should be completed. Bylaws also include information about the rights and powers of shareholders, directors, and officers. Bylaws can take a number of forms from very long, legalistic documents to extremely brief lists of responsibilities and rights. While the specific contents are unique to each corporation, they usually include the following:
- Information about the shareholders, such as annual meetings and orders of business the shareholders will discuss at annual or special meetings.
- Information about the board of directors, specifically the number, how and when they will be elected, terms of service, frequency of meetings, organization, qualifications, and any other specific requirements for the board.
- Information about board committees, such as how they are constituted and their duties and responsibilities, procedures and meeting protocol.
- Information about the board’s interaction with corporate officers, such as removing them or reviewing their performance, and setting compensation. This may also include definitions of the various positions.
- Information about executing financial transactions in the firm, such as how or to whom stock may be issued, and any rules for approving contracts or other major transactions. The bylaws may also stipulate the form and function of financial reports the board should submit to shareholders.
- Information on other general provisions, such as designation of a headquarters office and definitions of the corporate seal and fiscal year.
- Information about liability coverage for directors and officers of the corporation.
- Information about how the bylaws can be amended and by whom.
The board may be responsible for helping draft or amending the bylaws of the company. One of the first orders of business in any firm that’s creating a board for the first time is for the board to formally adopt the bylaws governing them.
This post is an excerpt from Zweig Group’s A/E Board of Director’s Manual