P2. Directors Flashcards
5 types of directors
Executive
Non-executive
Shadow
De facto
Alternate
What does an executive director do
Manage the day-to-day affairs of a company
What is a NED
Director without executive responsibilities to the company
Role of a NED acronym
POSSM
Role of a NED
Provide different perspective
Objective/unbiased challenge
Strategic guidance
Speicalist knowledge
Mentor for chair
3 examples of what could impair independence of NED
Employee within last 5 years
Close family ties to director or senior employees
Represents a significant shareholder
What is a shadow director
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
Significance of a shadow director being considered a director for all purposes
If the company becomes insolvent, their actions will be reviewed for wrongdoing along with formally appointed directors
What is a de facto director
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
What is an alternate director
A person appointed by an existing director to act on their behalf in their absence
When can an alternate director be appointed
If it is specifically permitted by the Articles
Which model articles allow for appt of alternate director
PLC model articles (reg 25)
How are alternate directors handled for the purposes of the Reg of Directors and CH
Identically to normal directors
Two eligibility criteria in Act for appointing directors
Must be at least one natural director
Must be at least 16 years old
4 examples of persons prohibited from becoming directors
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
4 examples of industries where appointment of directors is subject to regulatory approval
Financial services companies
NHS foundation trusts
Regulated audit firms
Solicitors’ firms
What do PLC model arts say about director rotation
All directors must put themselves forward for re-appointment at least every three years
What does the governance code recommend on director rotation/re-appointment
All directors offer themselves for re-appointment at every AGM
Minimum numbers of directors
1 for private, 2 for public (unless stipulated otherwise in the articles)
If the appointment of a director is found to be defective, do their prior decisions still stand, and why?
Yes, in order to protect third parties
On what grounds and with what form may a director dispute their appointment
If they have not consented, form RP06
Collective responsibility of directors explained
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
Duties of directors - acronym
EPANADE
Duties of directors
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
Role of common law in duties of directors
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
6 ways in which a director is removed from office
Resignation
Death
End of fixed term (rotation)
Bankrupt
Disqualified by court order
Ordinary resolution of members (removal)
On what grounds can a director be disqualified by court order (8)
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)
Succession plans should ensure the delivery of (5)
Skills
Expertise
Diversity
Independence
Balance
Feb 21 review into gender diversity
Hampton-Alexander Review
4 recommendations of Hampton-Alexander Review
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
What is BEIS
Department for Business, Energy and Industrial Strategy
What is GEO
Government Equalities Office
2017 report on ethnic diversity
Parker Review
Main target set out in Parker Review
1 ethnic minority background board member for FTSE100 by Dec 2021, FTSE250 by Dec 2024
What proportion of board should be NEDs according to UK CG Code
50%
Legislation on unnatural directors
Not yet brought into force. Latest consultation said corp directors would be banned unless their own boards comprised only natural persons
