I feel a bit foolish for asking, but what exactly do board members do?
Does each board member have one vote? I assume events (key hires, acquisitions, investments) are brought to the board for a vote, and need to pass with a majority. Is there ever a case where a single-founder could have multiple board seats? Do board members vote on product/marketing decisions?
The board is responsible for approving all major company actions that aren't delegated to management. In practice, this is mostly: approving option/stock grants for employees, approving financings, hiring and firing senior executives, setting budgets and financial plans, and overseeing the work of management to make sure they're doing what's best for stockholders, and generally talking with management about strategy and plans. They also typically give a lot of help with important hires and making introductions for financings and sometimes business deals. There's no formal vote on other stuff like the product/marketing decisions you asked about, but that would be discussed at board meetings and between them as well, and board members give lots of advice on these topics.
Board members almost always have just one vote each, because its a pain/legal expense to set it up otherwise, and folks hold just one seat each.
Follow-on question: do the shareholders usually have the power to redraw the board? Say you own 60% of the company but only 1 of 3 board seats -- could you overrule the board members or fire them if you felt it necessary? Does the board ultimately answer to the shareholders?
I imagine that this equity and board seat distribution could easily happen with a solo founder.
Absent an alternative structure, default corporate laws provide for the directors of a company with only one class of common stock to be elected by majority vote of the stockholders.
However, there are all sorts of alternative structures that can alter this default. For example, it is common in a VC-backed company that preferred stockholders are given the right to designate a specified number of board members. The right is usually laid out in the company's certificate of incorporation or a voting agreement among the stockholders.
Do they get paid by shares or salary? I mean is it a viable alternative to having a "job"? I see many people around sitting on multiple boards of companies.
If you are a investor in the company you usally don't get paid, just your trip expenses.
If you are an external member, somebody strategic to the company, you get paid either by meeting or some shares. Usually all board members in public companies are paid with cash.
No. VCs always get preemption rights, and always refuse to give up their board seats once they get them.
Replying to the OP a few threads up:
> I assume events (key hires, acquisitions, investments) are brought to the board for a vote, and need to pass with a majority.
There's an extremely common founder misconception that board seats are required for investors to be able to have a say in whether acquisitions and investments happen. But it's not true!
The normal pre-emption rights that every investor gets are what's used for these cases. Board seats are not required for this and unrelated to this.
In more mature companies there will be certain levels of decision delegation, usually tied to CapEx approval or the like, that require board approval vs. senior delegation vs. mid-level delegation. For example, it may be that mid-level managers can approve $10k spend, VPs can approve $1m, EVPs can approve $10m and the board must take anything higher.
This usually dovetails in with project management stage gates, in that for the project to progress to a latter stage, it must pass the financial stage gate to secure funding for that stage. To get that funding then triggers the aformentioned approval process.
Other decisions that may go to the board are executive team hiring, or the approval of major policy.
In start-ups, that's obviously going to be different but hopefully that paints the idea of what a board does. It's essentially a semi-democratic leadership structure for companies, rather than having a single founder run the show. By diversifying that decisionmaking process you, in theory, avoid the big blunders falling on a single person.
And then why can't this model of board (of Directors) be reconsidered and perhaps reinvented? What makes for the need to have a board and what other alternatives to a board does an entity have?
I'm sure someone here knows about the underlying concepts about Companies & Corporations and can answer this.
It's a requirement of Delaware corporate law to have at least one board member. In theory, the board is there as the elected representatives of the stockholders, to make sure that management is acting in the best interests of the stockholders, and to replace management if that's not the case.
In other kinds of entities, like an LLC, the company can be managed directly by the members (stockholders), but that's not very efficient for larger organizations, since you'd have to get votes from the whole group of stockholders for everything instead of just having a small group vote at regular meetings.
Does each board member have one vote? I assume events (key hires, acquisitions, investments) are brought to the board for a vote, and need to pass with a majority. Is there ever a case where a single-founder could have multiple board seats? Do board members vote on product/marketing decisions?