The traditional corporate pattern is triangular with the shareholders at the base. The shareholders select the personnel at the next level - namely, the board of directors. Directors of a corporation may be
- 1) independent - independent directors typically means they are:
- Outside - do not work full time for the company.
- Disinterested - receive nothing from the transaction at issue different from what the shareholders of the corporation receive.
- Independent - no relationship to the interested director that would make him or her unable to be impartial.
- 2) inside - inside directors are officers who also serve the company's directors.
Many recent corporate governance proposals have centered around proposals to strengthen boards of directors through the use of independent directors. State corporate law does not require independent directors. Publicly traded coporations have inside directors who are also officers of the corporation and now must have a majority of independent outside directors under stock market rules.
The board of directors appoints the chief executive officer and other corporate officers, determines corporate policies, oversees the officers' work, and in general manages the corporation or supervises the management of its affairs. The directors' control of a corporation is limited by statutory requirements that shareholder approval be obtained for fundamental corporate acts such as charter amendments, consolidations, mergers, voluntary dissolution, and sale or lease of all or substantially all corporate assets.
Directors are fiduciaries and thus bound by the: