As a stockholder (or partial owner) of a company, it is your responsibility to give the managers of the company advice on how to run the company. Since there will be hundreds of thousands of "partial owners" of a company, the company will set up a board of directors to represent your interest. These directors are usually elected by you and your fellow owners. You have one vote for each share that you own.
A shareholder will typically be asked to vote on board members and other issues that the board feels needs the input of the owners. Typically, these issues include the selling or buying of divisions of the company, compensation questions for key managers and board members, and company dividends. It is your responsibility as a company owner to vote when you are sent these requests.
There are some companies that have different types (or classes) of stock. For example, it is common to have voting stock and non-voting stock. If you have non-voting stock, you will not have the right to vote on issues nor will you be asked for your opinion on the board members. In general, you should avoid these types of companies since they almost always have interests that make them non-responsive to the best interest of the majority of their stockholders.
A company's board of directors provides the company with direction and advice. It is the responsibility of the board of directors to ensure that the company fulfills its mission statement. The board of directors frequently sets the company's overall policy objectives. A well-functioning board of directors acts as a top-level adviser to the company. A good board of directors will let the company know when it is drifting away from its goals and objectives. For these reasons, a good board of directors includes knowledgeable and experienced business people.
Typically, only one member of the board of directors is involved with the day-to-day activities of the company. This person is the Chief Executive Officer (CEO), and he or she acts as a liaison between the board of directors and the rest of the company. The CEO is responsible to the board of directors for the daily status of the company, and for the implementation of the vision and policy objectives of the board of directors. It is also the responsibility of the CEO to hire the other managers in the company. These managers, in turn, are responsible for the various departments and related employees.
It is becoming common for the board of directors to be held fiscally responsible for the performance of the company. While it is still rare for directors to be sued for something the company has or has not done, it can happen. Directors who have allowed a company to drift into bankruptcy have also been sued by the shareholders for negligence.