M1: Learner Manual
5. The Role of a Company Director
A company director is an office-holder, which means that they have a legal status and responsibilities.
As a director, they are legally responsible for the company’s business and can be held accountable for its actions. This is why directors should have D&O liability insurance. It protects directors and officers who may be personally sued by someone aggrieved by the company’s actions, whether that person is an employee, vendor, competitor, investor, customer, or another party.
Directors of companies are generally appointed to the Board following a formal process, and they are then registered with the company’s office.
The minimum number of directors for most companies is two. Directors are responsible for managing the affairs of the company. To become a director, you do not need formal qualifications, but a formal qualification helps.
There are, however, some people who are ineligible to serve as directors of companies, such as auditors, bankrupts and people disqualified by court order.
An executive director and a non-executive director are treated the same legally, and their responsibilities are the same.
A general meeting of shareholders normally appoints directors to the Board of a company.
Executive directors wear two hats: that of a company employee, usually a senior executive, and that of a Board member. On top of their full-time executive position, they are appointed to the Board.
Through their deep understanding of the business, executive directors can make the Board aware of important issues and ensure a thorough examination of them.[1]
Non-executive directors are members of a company's Board of directors but are not part of the executive team, meaning they do not engage in the company's daily management. Their focus is on significant company decisions, policymaking and strategy planning.
Non-executive directors are positioned within the Board of directors to bring their individual perspectives to the decision-making processes at an organisation. They may be required to support, assist and mentor the CEO, and provide critical feedback to help the leadership analyse important decisions and ensure they're in their best interest.[2]