P1 - 2. The Directors Flashcards
Who manages the affairs of a company?
Directors on behalf of its members
Can members appoint additional directors and terminate a directors appointment?
Yes, subject to any restrictions in the Articles
Can directors appoint additional directors to fill vacancies?
Private – usually, yes
Public company – appointments will often require validating by members at the next AGM
Definition of a director?
s.250 - person occupying the position of director, by whatever named called
What is the significance of the word person in the s.250 definition of a director?
Refers to any person rather than any individual and thus will include corporate bodies, which have a ‘legal persona’
Must directors have the word ‘director’ in their job title?
Not a requirement
Different types of director?
Executive
Non-executive
Shadow
De Facto
Alternate
What information should be obtained from the new director?
Full name
Date of birth
Service and residential address (if different)
Nationality
Occupation
Who cannot be appointed as a director?
Person under the age of 16
A disqualified person
A bankrupt
An auditor or employee of the audit firm
A director of an insolvent company cannot be appointed as a director of a company with a prohibited name without consent of the court
Anyone not meeting any specific criteria in the Articles
What is the role of the senior company executives?
Day-to-day management of the company’s affairs
What is an executive director?
A senior management executive who is also board director
In smaller companies who are usually company directors?
Typically all executives
In listed companies who are usually company directors?
At times, it may only be the CEO and CFO
What governs the provision on the of appointment of director as an executive director?
And what does this mean?
The Company’s articles
Directors have the power to
appoint such directors, to determine the terms of their appointment and remuneration and delegate to them such powers of the board as may be desired.
Which directors should have a contract of employment?
Directors who hold a salaried position
What should the service contract specify?
Whether remuneration stated in the contract is exclusive or inclusive of directors’ fees
Any provisions relating to confidentiality and some control over the director’s activity, in the event of their leaving the service of the company.
For a smaller company where could the terms of appointment be set out?
In the minutes of the board meeting appointing director
What is a non-executive director?
A director without executive responsibilities in the company.
There to contribute skills and experience to board decision-making.
Provide balance and challenge proposals bought forward by the executive team
Are NED’s employees of the company?
No – and therefore will not have a service contract
Where are NED’s terms of appointment set out?
In a letter of appointment
Under the Governance Code – what is the recommendation for NED independence?
They should be independent from company and its management
Half of the directors should be independent NED’s, excluding the chair
What are the key differences between an executive director and an NED?
Executive directors:
Are employees of the company (usually full-time)
Responsible for: day-to-day management
Formulating policies
Implementing company strategy
NEDs:
Not employees of the company (usually part-time)
No hands on management
Brings expertise, experience, balance
Responsible for setting corporate goals and strategy
What criteria prevent an individual from being independent (NED)?
Long association with the company
Being an employee
Share options
Recent material business interest
Cross-directorships
Represents a significant shareholder
What is a shadow director?
s.251 - any person who has not been formally appointed as a company director, does not openly participate in managing the company but on whose instructions the appointed directors and employees usually act.
