What does a company director do?

What does a company director do? A corporate governance education guide covering the core duties of this crucial position. There are different types of directors in organisations, but if you are a company director, you sit on the board of a company.

Company directors have legal rights and responsibilities and can be personally liable if things go wrong.

A company director is a formal role within the leadership structure of most companies. Here, “formal” means they have official, legal responsibilities to that company, and can be held accountable for its actions.

Specifically, a director is a member of the company’s board. The board is a team of directors entrusted with making strategic decisions in the best interests of stakeholders. Some directors are also employees (for example, the company’s CEO will often be a member of the board). Most, however, are not.

Confusion can arise when some companies use the word “director” for management roles that have no connection to the board, like “director of finance” or “director of public engagement”. If you ever come across this potential confusion in your own career, it’s always best to check.

To become a director, you do not need formal qualifications, but a formal qualification helps.

Every company director shares core oversight responsibilities. Some might have different skillsets, experience and independence from others, but collectively, they are in their roles to steward the company to success.

The company director:

• Oversees the company’s strategic direction. Working with senior management, they define short and long-term goals, adapting over time where necessary.
• Always asks constructive questions of strategic elements, using their experience to query decisions or practices that need more explanation.
• Works with other board members to hire/fire a company’s CEO and other C-suite leaders.
• Monitors compliance outputs in all areas, including finance, risk and newer topics like sustainability and AI governance.
• Attends regular meetings to vote on key decisions.
• Sets remuneration for the CEO and other C-suite leaders.
• Manages policies around dividends and stock options.
• Oversees and approves mergers.
• Takes a leading role when the company lands in a crisis.

Directors collectively exercise their rights and responsibilities during board meetings. This is the primary channel for leadership when it comes to directors, and it should always be respected. Indeed, board-level decisions made outside of board meetings (even those which are still given the “official” seal of approval in the meeting, with most of the discussions remaining outside) are a giant red flag. It indicates that the essential governance structures are not functioning properly.

Board meetings generally operate with set structures. They often begin with the approval of a meeting agenda, followed by reports from the C-suite and various board committees. After that, any proposals will be discussed, and this is where directors exercise their scrutiny, questioning and refining ideas through collaboration with each other. Following that, a vote on the proposal will usually ensue, enabling directors to use their other principal powers of decision-making.

Every single process mentioned above will be recorded in documents like the meeting minutes. This is a requirement, and minutes can often be essential records when examining past decisions.

As well as holding the statutory position of director, an executive director is also employed by the company, usually in charge of a specific area of business (e.g. finance director or sales director). The executive directors are responsible for the daily operations of the company.

A non-executive director does not work directly for the company. They are independent outside voices who advise the board and often have particular expertise such as digital transformation, HR, or ESG.

In addition to attending board meetings and having the same duties and responsibilities as executive directors, non-executive directors oversee a company’s strategy, ethics, and integrity as an independent voice.

A basic definition of a company director could be any who is registered at the company registration office as a director of the company. This would make the company director a member of the board of directors.

The role and duties of the director can be one of the most critical roles in the organisation. Company directors can also be known as statutory directors.

Since they are instrumental in the business’s success, when choosing a company director, it is vital to ensure that they share the vision for the future direction of the business.

The ultimate duty of the company director is to manage the business on behalf of the shareholders.

Statutory directors legally make decisions on behalf of the company. If you say that someone was appointed to the board of directors, then this would mean they are a statutory director.

The managing director or CEO is responsible for implementing the board’s strategy.

Other types of directors can include nominee directors, shadow directors, and alternate directors.

While others within the company may use the word director in their title, such as ‘director of communications’, it is crucial to understand that unless the board has appointed this person, they are not a statutory director.

As the company director, you need to be aware of your fiduciary duties and responsibilities. A director should act in the best interests of the company, and there are various legal obligations.

The legal duties of company directors are outlined under the Companies Act within your jurisdiction. Anyone over 18 can become a company director (in the UK, this is over 16), providing they are not currently declared bankrupt or have been disqualified or restricted from acting as a director.

A company director should be able to read financial reports and understand the state of the company. They should also understand the risks the company might be facing and ensure that legal requirements are met. A director should establish good practices and policies and ensure the company is registered correctly and that all taxes are filed.

There are many benefits to being a director, such as having a say in running the company and networking with other company directors.

However, there are also risks such as fines and even prison sentences if you fail to meet your legal requirements and responsibilities. For example, failing to keep financial records up to date could result in prison or a fine.

A director can be held personally liable for the company’s debts if the company is unlimited.

A company director gets their authority from the company’s articles of association. The director must consider the future consequences of their decisions, the impact on employees, the companies relationship with other stakeholders, and the obligation to maintain excellent standards.

A director should also try to avoid conflicts of interest such as holding numerous directorships, having significant investments in something like a property in which the company’s activities might become involved, and profiting from the inside knowledge gained while being a director of the company. Such conflicts of interest could also apply when considering close family members of the director.

• A company director is someone who sits on the board of a company.
• As a director, they are legally responsible for the company’s business and can be held accountable for its actions.
• As a director, you need to be aware of your fiduciary duties and responsibilities. A director should act in the best interests of the company, and there are various legal obligations.
• The ultimate responsibility of the director is to manage the business on behalf of the shareholders.

To develop the practical knowledge, insight and global mindset to be a great company director and board member, you can take the Diploma in Corporate Governance. Download the course brochure here and below.