Board of Directors Governance
To manage a business, you need more than just workforce. You need a combination of processes, rules, people, and procedures, in other to make it work efficiently. This is where corporate governance begins. Corporate governance deals with how a board assists, directs and manages the corporation by acknowledging the impact of decisions on customers, employees, suppliers, shareholders, and the community.
The board of director’s job is to oversee the conduct of the business and also to supervise management. In some companies boards are allowed to delegate certain powers to the corporate officers (CFO or CEO) and also to delegate responsibilities to the executives on how to best carry out the company’s day to day affairs.
The board of directors form the basis for corporations to make decisions that takes into account the economy, society, regulatory boards and the market environment.
The board of directors have members of the committee, which will be subsets of the board of directors and which will report back to the board of directors. These are such committees as audit and compensation.
Who Makes Up The Board?
Normally, and except in rare occasions, the board of directors is made up of active investors of the corporation. For one, the major investor is entitled to a seat, the CEO of the company is also required to have a seat as well. The rest depends on their contribution to the growth of the company as well as their market sense/sales knowledge of the product and the market.
At the initial stage, the board of directors’ members are usually not more than 7 and not less than 5 members, but as time goes on, the size of the board of directors would increase in proportion to the growth of the company, the needs of the company, and the normal practices for the industry.
Each seat of the Board of Directors has a vote that is to be used in voting for important decision making processes. To avoid a draw or a stalemate during decision making, it is best if you have a board of directors of an odd number.
To have a good board of directors that would help govern the company, there are 5 basic profiles of qualities you need. They include the following;
- The “Mature” members: These members are basically those that can calm the board down by offering maturity and experience to mediate and arrive at the proper decisions for tough problems. They have a calming influence on the board.
- The “Customer” members: These members are those that understand the customers. They are familiar with the market, the trends, and the needs of the customers. They may not necessarily need to be customers as long as they understand the customers.
- The “Genius” members: These members do not only understand the business, they are also under the developmental efforts that is required to pierce through the market and fulfill your needs.
- The “Connection” members: These members are all about the connections. They are ready and have a wide network of contacts that are on offer. They are also willing to let the board use it to further the company.
- The “Ethical” members: These members are there to call you out when they smell something fishy. They make sure that everything is done completely ethical and legal without compromising anything.
Functions of the board of directors
The board of directors act as the governing body of the company in terms of decisions making. They are there to provide guidance and direction for the future. Eventually, they would be acting like an in-house CFO and assess the following risks:
- Reputation of the company
- Litigation
- Finances
- Technology
- Reporting
- Safety
- Health
- Ethics, and
- Environmental.
The following are some of their functions:
1.They protect the interest of the board, the management, the stakeholders, and the shareholders, by responding to their responsibilities and duties with the highest regard to accountability and transparency.
2.These make decisions after serious consideration to their effects and consequences on the customers, employees, suppliers, shareholders, and communities.
3.They oversee and plan, while at the same time desist from micromanaging the company. This means that they have to delegate certain powers under certain circumstances to the CFO or CEO.
4.The board delegates some certain duties to board committees, who will devote time, resources, and energy to resolve issues.
A well composed board of director’s governance is one that offers a wide range of perspectives, expertise and knowledge into the boardroom, as well as into the market.
Audit Committee Financial Expert & Board Governance Investigation
Corporate governance fails when the board lacks an audit committee financial expert, fails to monitor related party transactions, or breaches fiduciary duty of oversight under Caremark.
As CFO of 6 public company boards and independent director, I have served on audit committees and conducted independent board investigations. I qualify as audit committee financial expert under SEC Reg S-K Item 407 and serve as independent forensic accountant for litigation and internal investigations in the Bay Area.
What I Investigate — Cases That Lead to Litigation
1. Audit Committee — No Financial Expert
Under SOX 407, public boards must disclose whether they have a financial expert. Many private boards have none. I review:
- Did audit committee review related party transactions before approval?
- Did they question aggressive revenue recognition or inventory inflation?
- Did they have authority to hire independent forensic accountant without management approval?
- Were whistleblower complaints tracked and investigated?
In one case, board minutes showed audit committee met twice a year for 30 minutes and approved $2M related party loan to CEO with no fairness opinion. No financial expert on committee. Breach of duty of care.
2. Fiduciary Duty Breach — Caremark Duty of Oversight
Under In re Caremark Int’l and California Corp Code 309, directors have duty of care and loyalty, including duty to implement monitoring system for fraud, payroll tax, sales tax, and compliance. Failure is breach that can lead to personal liability.
I trace what board knew and when via board minutes, emails, and operating agreement.
Example: CEO paying spouse’s marketing firm $400k/year as “advertising expense” while company losing money and unable to pay sales tax. I looked up Secretary of State — firm 100% owned by spouse, formed 2 weeks before contract. Board minutes showed no disclosure under Corp Code 310, no competitive bid, no recusal. I traced bank deposits — spouse firm had no other customers. I calculated excess distributions disguised as expense: $400k vs market rate $80k = $320k breach of operating agreement.
3. Compensation, Distributions, and Related Party Transactions
- Excess salary or bonus disguised as distributions — breach of operating agreement / bylaws. I do 3-way match: payroll vs bank vs distribution ledger.
- Related party vendor charging above market — I compare vendor invoice to bank deposit to market rate survey.
- Loans to officers/directors not approved under Corp Code 315 — I trace promissory note, interest rate vs market, repayment.
4. Independent Board Investigation Process — How I Work
- Document request: Board minutes, consents, operating agreement/bylaws, cap table, related party ledgers, QuickBooks, bank statements 24-36 months, whistleblower log.
- Trace: Every dollar links to Bates-stamped source — bank, invoice, Secretary of State, email.
- Analysis: Related party ownership, market rate comparison, timeline of what board knew, disclosure under Corp Code 310.
- Report: Facts, methodology (NACVA/ACFE standards), application, opinion with exhibits that survives Sargon / FRE 702.
- Privilege: If retained by counsel for independent investigation, work product considerations apply.
California Law
Corp Code 309 — directors must act in good faith, with care of ordinarily prudent person, in best interests of corporation. Corp Code 310 — interested director transactions must be fully disclosed and fair or approved by disinterested directors/shareholders. Corp Code 316 — unlawful distributions liability. Failure can lead to personal liability for directors.
Board Minutes Checklist — What I Request
- Annual and special meeting minutes, consents in lieu of meeting
- Audit committee charter, compensation committee charter
- Operating agreement / bylaws / shareholder agreement
- Related party transaction policy, whistleblower policy
- Cap table, distribution history, officer loans
- QuickBooks / financials, bank statements, vendor master file
If minutes are missing or show “approved all actions of officers” with no detail — that’s a red flag for breach of oversight.
Cost
Independent board investigation preliminary $10k-$25k includes document review, related party trace, Secretary of State lookup, preliminary report. Forensic report for litigation $15k-$40k. Expert testimony $375/hr as of 2026. Free 15-min conflict check to determine if independent investigation or litigation support.
Based in Fremont, serving Bay Area boards: San Jose, Oakland, San Francisco. See my Forensic Accounting vs Auditing, Lost Profits, and Expert Witness Work pages.
FAQ
What is an audit committee financial expert? Under SEC Reg S-K 407, a person with experience as CFO, controller, or auditor who understands GAAP and financial statements. Public companies must disclose if they have one.
Can directors be personally liable for failing to oversee fraud? Yes, under Caremark duty of oversight, if they failed to implement any monitoring system or consciously disregarded red flags.
What is a related party transaction under Corp Code 310? Transaction where director has material financial interest. Must be fully disclosed to board and fair to corporation, or approved by disinterested directors/shareholders.