What a board is actually for
In most companies of any size, ownership and control are split. Shareholders put up the capital, but they do not sit in on product meetings or approve purchase orders. Executives do that. The board of directors exists to bridge the gap: it acts on behalf of the owners, watches the people running the business and keeps the largest decisions for itself.
In practice a board does a handful of things. It appoints, supports and, when necessary, removes the chief executive. It approves strategy and the annual budget. It signs off major investments, acquisitions and borrowing. It decides how much risk the company is willing to take, and it makes sure the accounts give a true picture. Everything else is delegated to management, usually under a written "schedule of matters reserved for the board".
The law adds weight to those tasks. In the UK, section 172 of the Companies Act 2006 requires directors to act in the way they consider most likely to promote the success of the company for its members as a whole, while having regard to employees, suppliers, customers, the community, the environment and the long-term consequences of decisions. In the United States, where many large companies are incorporated in Delaware, directors owe duties of care and loyalty to the corporation and its shareholders.
Executive and non-executive seats
A typical board mixes two kinds of director. Executive directors, often the chief executive and the chief financial officer, work in the business full time. Non-executive directors do not; they attend board and committee meetings, read the papers and challenge management. Independent non-executives are meant to have no ties that could cloud their judgement, such as a recent job at the company or a large contract with it.
The chair leads the board itself, not the company. Separating the chair from the chief executive keeps one person from both running the business and supervising how it is run. In the UK this split is the norm for listed companies; in the US combined roles remain common, often balanced by a "lead independent director".
Committees do the heavy lifting
Full board meetings are too short for detailed scrutiny, so work is pushed into committees. The audit committee oversees financial reporting, internal controls and the relationship with the external auditor. The remuneration committee sets executive pay within a policy shareholders approve. The nomination committee plans board succession and searches for new directors. Larger or regulated firms add a risk committee. Each reports back to the full board, which keeps final responsibility.
Where the modern rules came from
Most governance rules were written after something went wrong. In the UK, a run of collapses around 1990, including Polly Peck, BCCI and the Maxwell companies, led to the Cadbury Report of 1992. It recommended independent non-executives, audit committees and a split between chair and chief executive. Its ideas grew into the UK Corporate Governance Code, now maintained by the Financial Reporting Council on a "comply or explain" basis: listed companies follow each provision or explain publicly why not.
In the US, the failures of Enron and WorldCom produced the Sarbanes-Oxley Act of 2002. It made chief executives and finance chiefs certify their company's reports, strengthened auditor independence and, under section 404, required management to assess internal controls over financial reporting. Internationally, the G20/OECD Principles of Corporate Governance, first issued in 1999 and revised in 2023, set a reference point that many national codes draw on.
How to read a board in practice
If you want to know how a listed company is governed, open the governance section of its annual report. It names the directors, states which are independent, lists meeting attendance and describes what each committee did that year. Inside a company, the minutes and the delegation-of-authority policy tell you who can approve what. Knowing those limits before you draft a proposal is the quickest way to get it to the right desk the first time.