Board members typically don't get paid especially well, nor receive meaningful equity positions in exchange for being on the board. If you're a sizable investor in the company, obviously that's a different context.
In the Fortune 500, it's a prestige gig as much as anything. For many smaller companies, agreeing to be on the board while not being a large investor, is almost akin to being involved in a local govt board of economic development for a town or county - it's sometimes done as a favor, out of quasi-charity to help out, and or you know some of the people involved and want to see the company succeed.
It can also be a great way to make more connections in business; one board membership refers to the next - you can kind of move up an economic chain that way if you go on a successful ride-along. People like to be associated with / involved with successful enterprises.
The historical reason for connected board control, is at least two fold: enabling trusted parties to oust the CEO without needing to hold a large vote by shareholders (not an easy thing to do now, and more difficult a century ago); and enabling direct major shareholder control without requiring a wider shareholder vote (if you own 10,000 shares of Walmart along with a million other investors, while technically those total shares have the same voting value net as the hedge fund that owns 5% of the company - the 5% entity wants a lot of influence due to the concentrated stake). Board control also enables rapid action in cases of fraud or abuse by the top executive/s, in which case time may be critical - that is, you don't want to wait months for a full shareholder vote.
Also, who do you leave legal authority to, when it comes to deciding the replacement for a CEO that has decided to retire or quit (or dies, or whatever)? Certainly shareholders as a whole have legal control, but it's not very practical to have thousands of shareholders trying to figure out who gets to be the next CEO (most of those shareholders will have absolutely no idea who would make a good candidate, or where to start, having typically zero direct involvement in understand the business top to bottom, and most shareholders will have no experience running a serious business). The only entity that makes sense in that regard is a board of some sort.
> Board members typically don't get paid especially well... In the Fortune 500, it's a prestige gig as much as anything."
They get paid $100-250k for maybe 1 day a month of work and very little responsibility most of the time. That's a lot of money in absolute terms but maybe not relative to the total income of typical board members.
In the Fortune 500, it's a prestige gig as much as anything. For many smaller companies, agreeing to be on the board while not being a large investor, is almost akin to being involved in a local govt board of economic development for a town or county - it's sometimes done as a favor, out of quasi-charity to help out, and or you know some of the people involved and want to see the company succeed.
It can also be a great way to make more connections in business; one board membership refers to the next - you can kind of move up an economic chain that way if you go on a successful ride-along. People like to be associated with / involved with successful enterprises.
The historical reason for connected board control, is at least two fold: enabling trusted parties to oust the CEO without needing to hold a large vote by shareholders (not an easy thing to do now, and more difficult a century ago); and enabling direct major shareholder control without requiring a wider shareholder vote (if you own 10,000 shares of Walmart along with a million other investors, while technically those total shares have the same voting value net as the hedge fund that owns 5% of the company - the 5% entity wants a lot of influence due to the concentrated stake). Board control also enables rapid action in cases of fraud or abuse by the top executive/s, in which case time may be critical - that is, you don't want to wait months for a full shareholder vote.
Also, who do you leave legal authority to, when it comes to deciding the replacement for a CEO that has decided to retire or quit (or dies, or whatever)? Certainly shareholders as a whole have legal control, but it's not very practical to have thousands of shareholders trying to figure out who gets to be the next CEO (most of those shareholders will have absolutely no idea who would make a good candidate, or where to start, having typically zero direct involvement in understand the business top to bottom, and most shareholders will have no experience running a serious business). The only entity that makes sense in that regard is a board of some sort.