A company needs oversight beyond its day-to-day managers. The board of directors is the group elected or appointed to provide that oversight. Directors set broad strategy, hire and evaluate the chief executive, monitor major risks, and ensure that the company meets its legal and ethical obligations to shareholders and other stakeholders.

Boards typically include both inside directors (executives of the company) and outside or independent directors. Independence is valued because it reduces conflicts of interest. Committees of the board—audit, compensation, nominating—handle specialized responsibilities in greater depth. Meetings occur on a regular schedule, with additional sessions when significant decisions arise.

Effective boards balance support for management with constructive challenge. Dysfunctional boards may become either rubber stamps or sources of constant interference. Corporate-governance codes and stock-exchange rules increasingly specify expectations for board composition, independence, and process. Ultimately the board’s authority derives from the shareholders, to whom it is accountable.