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What are the different types of company directors?

by Stephen Conmy on Sep 5, 2021

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There are several different types of company directors. It doesn’t matter what position board members hold within a company; their responsibilities are the same. This Lexicon guide explains more.

Various identifying labels for directors such as executive, managing, and non-executive denote the types of roles they perform and do not imply that their responsibilities or obligations are greater or less than those required by law.

Even if a director has not been formally appointed to the board, that person can be considered a director if they have acted as such and have had the same influence over the company’s running. After all, one of the duties of a director is to ensure the business or organisation is operated in a manner that complies with the relevant regulations.

What are executive and non-executive directors?

Directors fall into two major categories – executive directors and non-executive directors. The big difference is that non-executive directors do not participate in the day-to-day operations of the organisation.

While executive directors are responsible for such things as recruitment, managing people, and entering into contracts, non-executive directors are there to provide advice and monitor the executive management. Non-executives (or NEDs) usually offer specific expertise and usually work part-time on a consultancy basis with the board of directors.

A company’s shareholders elect the board of directors, and then those directors, or the shareholders, may appoint new directors. The company’s CEO or managing director then implements the board’s strategy.

Aside from executive and non-executive directors, there are several other categories in which company directors may fall. A de facto director, shadow director, nominee director, and alternate director are all examples of this.

What are the priorities of the executive committee?

There can be a lack of focus on executive committees where leaders juggle too many priorities, resulting in high attrition rates or poor financial performance. So, one role of the executive committee would be to choose a limited set of preferences to focus on and ensure that they are aligned on these core priorities. They must monitor the external environment for threats and opportunities, communicate the vision and strategy to the board and executive, motivate the workforce, and build solid and accountable teams.

The committee should choose which priorities should be focused on at their level and which can be delegated. They should consider the organisation’s mission, vision, and values and address emerging issues and crises. An executive committee can be a minor team that can get together at short notice and make decisions on behalf of the entire board. Acting as a kind of steering committee, the executive team may prioritise the issues the whole board should address.

What are de facto directors?

Although not officially appointed to the board, de facto directors assume the role of directors. For example, they sign contracts, make decisions, and appear to third parties as a director on behalf of the company. A de facto director has the same responsibilities toward the company as a regular director.

What is a shadow director?

The term shadow director one of the types of directors refers to any individual appointed by the company (aside from professional advisors) whose directions must be followed by the other directors.

Shadow directors are determined by their influence over the company’s operations.

Companies should be diligent when appointing shadow directors and ensure that all legal requirements are met.

A breach of directors’ responsibilities can result in harsh penalties, and the lack of a formal appointment does not necessarily protect a shadow director.

What is a nominee director?

Nominee directors represent the interests of stakeholders or stakeholder groups (nominators) on a company’s board. Nominators appoint them to safeguard their interests.

However, regardless of its appointment by a specific stakeholder, a nominee director is not relieved of his general duties as a director of the company.

The appointment of a nominee director can occur for many reasons, including;

  • Nominee directors may be appointed under the Articles of Association (AoA). Often, partners in a joint venture can appoint their nominees to the board of directors.
  • If a financial institution gives a substantial loan to a company, its nominee directors are generally appointed to the board of directors to ensure the lenders’ interest is protected.
  • When a party invests heavily (in the form of shares or otherwise) in the company, the investor is entitled to nominate a director to the board of the investee.
  • A stakeholder may be granted such a right through a contractual arrangement between a company and themselves.
  • In cases where the statute specifically provides for the appointment of nominee directors to the board.

What is an alternate director?

When another director cannot attend a board meeting, an alternate director may be appointed in their place.

In the absence of the principal director, the alternate director has the same power as the principal director.

These types of company directors should receive all meeting and committee notes that the principal director would receive. They should be able to fulfil all their duties while the principal director is away.

In the same way as any regular director, the alternate director is personally responsible for their actions.

If you have an interest in becoming a company director, you can download this brochure and watch the short video below.

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