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Do You Need A Board Of Directors?

Denise Rondini April 19, 2012

Having additional experts help you make major decisions can help your dealership.

By Denise L. Rondini, Executive Editor

drondini@randallreilly.com

Corporations are required to have a board of directors, but a business that is set up as Limited Liability Company has no such requirement. Still some dealers have established boards of directors and others are thinking about doing so.

Successful Dealer recently spoke with Jeffrey Henderson, partner in the law firm of Duane Morris, to get his insights on the role of a board of directors. Here are excerpts from that interview.

 

SD: What is the purpose of a board a directors?

Henderson: This is going to sound like a non-answer, but they are there to make extraordinary decisions ─ those that are outside the ordinary course of business. It includes things like, “Should we get a bank loan, should we build a new building for our dealership, should we buy some later to build on in the future, should we take on a new line of vehicles, should we terminate an existing product line?”

Those kinds of things are extraordinary decisions that don’t come up every day.

If somebody asks, “Should we order 10 green trucks or 10 blues ones [for stock]? That is not for a board to decide. That is more of a day-to-day, routine decision that can be made at the officer or operational level.

 

SD: Does a board of directors have any other responsibilities?

Henderson: The board has a fiduciary duty and that is to act in the best interest of the business. Does that mean creating lots of dividends every year? Or does it mean creating growth in the business without cash distributions? Some of both often is the answer.

Does this mean they have to be right every time they make a decision or that they only can make good, correct decisions?

No, but they do have to make informed decisions. They have to make reasonable inquiry. They have to make themselves informed. They can rely upon legal counsel, accountants and other professionals for their opinions and then armed with those opinions and their own judgment, make a decision.

That is called the Business Judgment Rule. If they act within some reasonable standard of making proper business decisions and exercising proper business judgments then they have met that standard of care.

 

SD: If a dealer is considering setting up a board of directors, what kind of expertise should he look for?

Henderson: I would answer that by saying it depends on what kinds of decisions the board will be facing. Is it fair to say that since I have a truck dealership I would never want someone who has run a very successful carpeting company?

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