Common Shares

  

See: Common Stock.

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Finance: How does a board of directors f...27 Views

00:00

Finance a la Shmoop! How does a board of directors function?

00:06

All right, well structurally, the Board of Directors has really one function, after

00:11

it is elected by a vote, of the common shareholders, of the company. The board of

00:16

recruits, then hires the CEO and that's not necessarily easy. Because, most

00:23

of the good CEOs, you actually want, are already ensconced in high-paying jobs, [man being offered money]

00:29

from which they have to be bought away. Picking the right CEO, is the big

00:33

roulette wheel bet, the board makes. Is the CEO good, or bad, or ugly and yeah the

00:40

CEO can be all three. After being hired the CEO then hires everyone else, more or

00:46

less. In a public company, the board divides into committees, to advise and

00:51

oversee many of the little processes. There's audit committee people and

00:56

nomination and government committee people and Compensation Committee people.

01:01

In large companies there are also, often subcommittees, that focus on narrow

01:05

things, like technology, or politics and lobbying and, or the environment. You know, if [oil drill with man and duck]

01:11

you work for a big polluter. Well another big element of board value-add, revolves

01:16

around, strategy. Are we the high cost, high value company, or are we the low cost,

01:23

Walmart desk provider? That is, are we Pirates of the Caribbean, or are we La La

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Land? What other strategic issues are we fighting? How do we get into China and [world map]

01:34

Russia and get out of Somalia? So yeah, that's strategy. How does the

01:39

board cover its primary obligations, in providing a fiduciary duty, to the

01:45

shareholders, who elected them? Is the board governing fairly and equitably?

01:50

Yeah, how do they do that? Well they just basically pay attention, right? Are

01:54

company policies racist, or gender biased, or ageist?

01:59

Which is illegal everywhere, except Silicon Valley in Hollywood. Are all the [director and actress]

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right controls inspected, like audit, hiring, firing, policies and our

02:09

companies casual Fridays, have they gotten to just to casual? Is that a board item?

02:15

Yah, alright, next meeting. So yeah, that's the gist, hire the CEO, form

02:19

committees and of course they're also in charge of bagel Thursdays. [man in panda suit, bagels falling from sky]

Up Next

Finance: What is Common Stock?
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What is common stock? Ownership. Common shareholders own a pro rata slice of the pie. They elect the board of directors by vote. Some companies hav...

Find other enlightening terms in Shmoop Finance Genius Bar(f)