P2. Directors

Question 1

5 types of directors

Answer 1

Executive
Non-executive
Shadow
De facto
Alternate

Question 2

What does an executive director do

Answer 2

Manage the day-to-day affairs of a company

Question 3

What is a NED

Answer 3

Director without executive responsibilities to the company

Question 4

Role of a NED acronym

Answer 4

POSSM

Question 5

Role of a NED

Answer 5

Provide different perspective
Objective/unbiased challenge
Strategic guidance
Speicalist knowledge
Mentor for chair

Question 6

3 examples of what could impair independence of NED

Answer 6

Employee within last 5 years
Close family ties to director or senior employees
Represents a significant shareholder

Question 7

What is a shadow director

Answer 7

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

Question 8

Significance of a shadow director being considered a director for all purposes

Answer 8

If the company becomes insolvent, their actions will be reviewed for wrongdoing along with formally appointed directors

Question 9

What is a de facto director

Answer 9

A person who has not been formally appointed as a company director but holds themselves out to be a director and carries out the acts and duties of a company director

Question 10

What is an alternate director

Answer 10

A person appointed by an existing director to act on their behalf in their absence

Question 11

When can an alternate director be appointed

Answer 11

If it is specifically permitted by the Articles

Question 12

Which model articles allow for appt of alternate director

Answer 12

PLC model articles (reg 25)

Question 13

How are alternate directors handled for the purposes of the Reg of Directors and CH

Answer 13

Identically to normal directors

Question 14

Two eligibility criteria in Act for appointing directors

Answer 14

Must be at least one natural director
Must be at least 16 years old

Question 15

4 examples of persons prohibited from becoming directors

Answer 15

Bankrupt person
A person with a disqualification order against the,
Auditor of a company
Director of insolvent co cannot be director of a company with a prohibited name

Question 16

4 examples of industries where appointment of directors is subject to regulatory approval

Answer 16

Financial services companies
NHS foundation trusts
Regulated audit firms
Solicitors’ firms

Question 17

What do PLC model arts say about director rotation

Answer 17

All directors must put themselves forward for re-appointment at least every three years

Question 18

What does the governance code recommend on director rotation/re-appointment

Answer 18

All directors offer themselves for re-appointment at every AGM

Question 19

Minimum numbers of directors

Answer 19

1 for private, 2 for public (unless stipulated otherwise in the articles)

Question 20

If the appointment of a director is found to be defective, do their prior decisions still stand, and why?

Answer 20

Yes, in order to protect third parties

Question 21

On what grounds and with what form may a director dispute their appointment

Answer 21

If they have not consented, form RP06

Question 22

Collective responsibility of directors explained

Answer 22

Board act collectively, and directors can be held collectively responsible for the actions of boards, BUT individual directors can be held to account in an area where they have particular knowledge or experience, and a director cannot hide behind collective responsibility to escape liability

Question 23

Duties of directors - acronym

Answer 23

EPANADE

Question 24

Duties of directors

Answer 24

Exercise independent judgement
Promote success of the company
Avoid conflicts of interest
Not to accept benefits from third parties
Act within their powers
Declare interests in any proposed transaction or arrangement
Exercise reasonable care, skill and diligence

Question 25

Role of common law in duties of directors

Answer 25

Codified duties of directors are based on certian common law rules and principles and have effect in place of these rules and principles
Directors’ duties remain subject to the remaining uncodified common law rules such as on principles of breach of trust or minority oppression

Question 26

6 ways in which a director is removed from office

Answer 26

Resignation
Death
End of fixed term (rotation)
Bankrupt
Disqualified by court order
Ordinary resolution of members (removal)

Question 27

On what grounds can a director be disqualified by court order (8)

Answer 27

Unfitness (was dir. of insolvent co)
Conviction
Breach of statutory obligations
Fraudulent or wrongful trading
Disqual in the public interest
Disqualification undertaking
Competition disqualification order (re. competition law)
Competition undertaking (re. competition law)

Question 28

Succession plans should ensure the delivery of (5)

Answer 28

Skills
Expertise
Diversity
Independence
Balance

Question 29

Feb 21 review into gender diversity

Answer 29

Hampton-Alexander Review

Question 30

4 recommendations of Hampton-Alexander Review

Answer 30

Woman in at least one of Chair, CEO, SID, CFO
Gender pay gap for board and exec committee published
BEIS and GEO should coordinate as much as possible on government backed initiatives in diversity in business
BEIS and GEO should annually review with the Investor Association and other investor groups any proposed voting
sanctions applied to listed companies which fail to meet the gender diversity targets

Question 31

What is BEIS

Answer 31

Department for Business, Energy and Industrial Strategy

Question 32

What is GEO

Answer 32

Government Equalities Office

Question 33

2017 report on ethnic diversity

Answer 33

Parker Review

Question 34

Main target set out in Parker Review

Answer 34

1 ethnic minority background board member for FTSE100 by Dec 2021, FTSE250 by Dec 2024

Question 35

What proportion of board should be NEDs according to UK CG Code

Answer 35

50%

Question 36

Legislation on unnatural directors

Answer 36

Not yet brought into force. Latest consultation said corp directors would be banned unless their own boards comprised only natural persons