Company Director

Company Director

A company director lies at the heart of the company form of organisation. According to section 741 (1) of the Companies Act 1985, a director is "any person occupying the position of director by whatever name called." Any individual could be a director provided he is neither bankrupt nor 'disqualified' under current laws.

The current laws in UK require private limited companies to have a minimum of one company director and public limited companies to have a minimum of two company directors. Directors fall into two categories: executive directors and non-executive or independent directors. While executive directors such as the chairman and the chief executive officer are involved in the management of the company, non-executive directors assume an advisory role.

However, current laws do not distinguish between an executive and a non-executive director. According to current laws, all company directors have the same duties and responsibilities. A company director is subject to the provisions of the Companies Act 1985, the Insolvency Act 1986 and the Company Directors Disqualification Act 1986.

Duties of a Company Director

A company director has to ensure that the company, on whose board he serves, fulfils all statutory obligations. A company director, according to current laws, is responsible for the submission of statutory documents such as an annual return to Companies House. The companies listed on the London Stock Exchange are also subject to the provisions of the revised Combined Code-a set of corporate governance norms. The revised Combined Code has adopted a comply-or-explain approach. If a company does not comply with any of the provisions then it has to explain why it has not done so.

Statutory obligations apart, a company director is responsible for a host of other duties such as formulation of strategic objectives and policies; monitoring of progress toward goals; filling senior management positions; and maintaining relations with the shareholders.

A company director has indeed many other duties, but protecting shareholders now ranks somewhere close to setting direction. A company director serves as a bridge between the shareholders and the officers of the company. Safeguarding the interests of the shareholder is one of the important duties of a company director.

Now regulations exist to safeguard the interests of shareholders in most developed countries. There are also regulators to enforce these regulations, which they do so with extraordinary zeal. Still regulators are at a disadvantage compared to insiders such as company directors. While an executive director such as chairman and chief executive is involved in the management of the company, a non-executive director receives regular updates. Consequently, a company director is much better-placed than a regulator to judge if the interests of company shareholders are being served or not.

It is altogether a different question whether the board of directors will use that knowledge for the benefit of shareholders or not. A decade ago, most boards blindly endorsed the decisions made by the senior management. Furthermore, most boards were filled with the associates of the majority shareholder and senior managers.

The accounting scandals at Enron and WorldCom, however, have forced regulators to impose additional duties on directors. Consequently, corporations are increasing the number of independent directors on their boards. The corporate governance studies from the Cadbury Report in 1992 to the revised Combined Code in 2003 have also made boards more responsible. Still some companies continue to pack their boards with the associates of the owner and the senior executives. Still some company directors do not take their job seriously. For such companies and directors, the fate of Enron is a grim reminder of what is in store.