Board of Directors: What It Is and Its Purpose

What Does a Board of Directors Do?

By Lee Samaha – Updated Dec 13, 2025 at 5:22 PM EST

Key Points

Boards of directors oversee company management, representing shareholder interests.
They handle key decisions like dividends, audits, and executive compensation.
Investors can influence board composition to address company performance issues.
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People sitting at a table and talking with one another in a boardroom. — Image source: Getty Images.

What is a board of directors?

In a public company, a board of directors is a panel of people elected by shareholders to represent their interests. The board carries out various functions to both guide and assist senior management and often includes people proposed by management. Still, it’s important to remember that their purpose is to stand up for the interests of the owners of the company, i.e., the shareholders.

Shareholder

An individual or entity that owns a portion of a company's stock, entitling them to a share of its profits and assets.

What are the functions of the board of directors?

In representing the shareholders, the board carries out various functions critical to management running the company. These include:

Authorizing dividends, share buybacks, and capital allocation strategy in general.
Establishing an audit committee (a subcommittee of the board of directors) responsible for choosing and overseeing the company’s auditor.
The recruitment, supervision, evaluation, and compensation relating to the senior management of the company.
Assisting with the strategic direction of the company.
Establishing a working relationship with the chief executive officer (CEO) via a governance system, usually through a monthly board meeting.

These roles are extremely important to shareholders. If you are a shareholder who is unhappy with a company’s senior management or their compensation, the board is there to represent you in getting rid of management or adjusting their pay. If the company's strategic direction isn’t to your taste, then the board is there to take action.

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About the Author

Lee Samaha is a contributing Stock Market Analyst at The Motley Fool covering industrials, electricals, energy, materials, transportation, and infrastructure stocks. Prior to The Motley Fool, Lee was a Civil Engineer and Investment Manager. He holds a Bachelor of Civil and Structural Engineering from Southampton University and a Certificate in Investment Management from Chartered Institute for Securities & Investment. Lee first cut his investing teeth on The Motley Fool bulletin boards (commonly referred to as the “Fool Boards,”) and he’s infinitely grateful to all of the investors he learned from in this powerful investing community.

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Boeing and GE Aerospace. The Motley Fool has a disclosure policy.