What is a company director?
A director is an individual elected by the shareholders who is responsible for running a company. Directors are experienced people who come from various fields and handle different aspects of its operations. Collectively, directors form a company’s board of directors. In most jurisdictions, companies need to have at least one director. However, the requirements may vary in some countries.
Directors are responsible for a specific area of a company’s operations. They are also responsible for strategic planning, working with the board of directors and cooperating with others. Each director also reports about their respective area to the board of directors or CEO. Regardless of whether a company is for- or non-profit, directors play a significant role in its long-term success.
What are the different types of directors?
Directors are responsible for a specific area within a company. For example, a marketing and research director will deal with those areas only. In some cases, their duties may also be limited to a specific project or program. As mentioned, collectively, these directors form the board of directors. Several types of directors may be a part of the board of directors.
Some of the most prevalent types of directors may include the following.
As mentioned above, directors are responsible for a specific area, program or project. For example, these may include the finance director, marketing director, HR director, etc. Directors get appointed by the shareholders to be a part of the board of directors. Once hired, they handle their respective operations and report to the board.
Directors usually take an active part in a company’s operations. They are the highest-ranking officials in a company for their respective areas. Based on their responsibilities, directors may also constitute other types of directors, such as executive, non-executive, shadow, managing directors. Overall, directors handle a company’s operations and perform managerial duties.
In some circumstances, directors may take a leave of absence from the company. However, companies may not perform efficiently in the absence of these high-ranking individuals. Therefore, these companies may appoint another director to act in place of those who are absent. These directors are known as alternate directors. In most jurisdictions, companies must do so if a director is absent for longer than three months.
Alternate directors only play a temporary role while the original director is absent. Once the director returns, the alternate directors will have to vacate the office. Usually, alternate directors have the same roles, duties and authority as others. However, the board must approve these directors before appointing them to act on another director’s behalf.
De facto Director
Companies may also sometimes assign individuals with directorial duties. These individuals will perform the same duties and responsibilities as those of directors. However, they never get validly hired as a director. These individuals only claim to act or purport to act as directors. However, they are never officially recognized or appointed by the company.
The definition of directors includes being an appointed member of a company’s board of directors. Therefore, de factor directors are technically not directors. In some cases, companies may also appoint individuals to be directors. However, if their appointment does not meet the requirements of the companies act, they will be considered de facto directors.
Executive directors are one of the most prevalent types of directors. These directors perform the duties of employees as well as directors. Similarly, they handle operational and strategic business functions. The distinction of executive directors is crucial from non-executive directors since their duties vary substantially. Usually, executive directors carry more responsibilities.
Executive directors have intimate knowledge of the workings of a company. They also get officially appointed as the company’s directors. Usually, executive directors bring an insider’s perspective to a company. Therefore, they can provide significant value to the company and its operations. Overall, they are responsible for a company’s operations, strategic planning and working with the board.
Non-executive directors are the opposite of executive directors. These are individuals who are a member of a company’s board of directors. However, they do not partake in its executive functions or operations. Therefore, they are not responsible for how a company operates or its daily management. Non-executive directors only participate in the company’s strategic planning and policy making activities.
Additionally, non-executive directors also form various committees within a company. For example, these may include the audit committee, the nominations committee, the remuneration committee, etc. On top of that, non-executive directors are also responsible for monitoring the work of executive directors. Non-executive directors challenge the direction of executive directors and work in the interest of shareholders.
An independent director, as the name suggests, is independent of a company and its operations. These are members of a company’s board of directors. However, they do not have a material relationship with the company. Similarly, they do not perform any executive duties and do not participate in the company’s operations. Independent directors are a type of non-executive directors.
Independent directors perform monitory or consulting roles. Usually, they work towards improving a company’s governance standards and corporate credibility. Independent directors also play a substantial role in a company’s risk management process. They also partake in the various committees mentioned above.
A managing director is a type of director that is responsible for managing a company’s daily operations. These directors work under a company’s CEO and are responsible for how the company runs. They help in the overall management of a company and its operations. Usually, they are accountable for the company’s performance to the company’s shareholders.
Managing directors take orders from the CEO and act on them. Subsequently, they report back to the CEO. In some companies, they will report directly to the board of directors or the chairman. Managing directors are crucial in the running of a company in the long term. They also control the work and resources of a company. In some circumstances, the term managing director will also refer to the CEO.
Nominee directors are not as prevalent in all jurisdictions. These may only be common in some. For example, the Singapore Companies Act requires all companies to have at least one director who is a resident of Singapore However, if a company does not fulfil this requirement, it can appoint a nominee director.
A nominee director is a director who acts as a director and is a resident of the country. These directors play a passive role in a company’s directors. Nominee directors only exist to fulfil the regulatory compliance requirements. However, under the law, both nominee and regular directors have the same status.
Shadow directors are similar to de facto directors. As mentioned, de facto directors are not officially a company’s directors. However, they perform the duties and responsibilities that come with the role. Shadow directors are similar in that they are not officially directors. On top of that, they also don’t have the responsibilities and duties of directors.
Shadow directors are ‘behind the scene’ individuals. They are people whose directions and decisions the company’s management follow. Although shadow directors are not prominent roles, their authority is similar to that of directors. These individuals are also liable for their decisions even though they are not directors.
Dummy directors are individuals that are a part of a company’s board of directors. However, they act and vote on behalf of a non-member. For example, they may act on behalf of an investor who cannot be a director due to restrictions. Dummy directors are similar to nominee directors. These directors only exist on paper and act as placeholders.
Dummy directors do not have any authority of their own. They do not exercise any control over a company. Additionally, they do not partake in the company’s operations or executive functions. Some companies use dummy directors to fulfil regulatory compliance requirements. Usually, dummy directors only act as directors until a company can replace them with real directors.
Directors are significant figures in a company’s operations and strategic planning. They have various duties that they perform. Several types of directors may exist in a company, as discussed above.