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Corporate Governance Primer: Authority of the Board

By David C. Fischer

As the ultimate repository of management authority, the board of directors is spared the often laborious process by which matters are presented to it for its determination. By necessity boards must, and are entitled to, rely on corporate officers and advisers to select, refine, and present crisply for resolution the issues that come before it. The cost of such efficiency is the risk that board meetings become formulaic, board action becomes automatous, and board members fail to learn the alternatives, procedural or substantive, that might be available. This article is intended as a corporate governance primer, identifying the toggles, levers, and switches the board can set, pull, push, in the cab of the corporate crane.

In general, management of a corporation is divided between the board of directors and officers. Officers are directly responsible for a corporation's day-to-day operations, whereas the board's role, generally, is supervisory. Therefore, the board need expressly authorize only those transactions that are material or otherwise outside the corporation's ordinary course of business. Examples of such transactions include issuances of securities, declarations of dividends, bank borrowings, mergers, business acquisitions, appointment of officers and setting their compensation, and authorization of significant contracts, including officer employment contracts and employee benefit plans. In addition, the Sarbanes-Oxley Act of 2002 requires the audit committee of public companies to have direct responsibility for the outside audit function.

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