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Board of directors

A board of directors is a group of individuals chosen by the stock holders of a company to promote their interests, or in the case of a not-for-profit corporation by its members, by the previous Board or through some other mechanism in its by-laws or by statute in the case of a public corporation. In the United States and most other industrialized countries the board hires a CEO, President, and other professional managers to run the day-to-day operations of the company, while the board retains a high-level form of oversight. Typically corporate boards are involved in issues of ownership, strategy, financing, and mergers and acquisitions.

The actual power held by the board of directors varies widely from company to company. In some companies, the board of directors form a powerful body to which senior management is subservient. Other times, the board is a formality which merely rubber stamps decisions of the CEO and senior management.

The board is run by the chairman of the board who may or may not be an employee of the company. In larger companies the board is partitioned into several committees with specific tasks. For example, a compensation committee is commonly formed to make decisions regarding salary and stock allocations for top management (and sometimes for the entire employee pool). Others might include a legal affairs committee, and a mergers and acquisitions committee.

It is widely considered good management practice to create a board of directors with persons with expertise from diverse backgrounds and to have outside directors who can provide a perspective on a situation which is independent from management.

See: Corporation, Corporate governance