WHAT ARE THE

Roles and Responsibilities of Directors and Boards

Membership of a board of directors is a great privilege - but it is accompanied by risks and responsibilities

Roles and responsibilities of company directors

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Directors' Duties are defined in Section 172 of the UK Companies Act 2006

Duty to promote the success of the company:

 

(1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to -

 

(a) the likely consequences of any decision in the long term,

 

(b) the interests of the company's employees,

 

(c) the need to foster the company's business relationships with suppliers, customers and others,

 

(d) the impact of the company's operations on the community and the environment,

 

(e) the desirability of the company maintaining a reputation for high standards of business conduct, and

 

(f) the need to act fairly as between members of the company.

 

(2) Where or to the extent that the purposes of the company consist of or include purposes other than the benefit of its members, subsection (1) has effect as if the reference to promoting the success of the company for the benefit of its members were to achieving those purposes.

 

(3) The duty imposed by this section has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company.

How to learn more about directors' duties

The New Directors Handbook does what it says on the cover: a practical, comprehensive guide to becoming an effective director.

"how to become more confident, more effective, more quickly.."

  • Roles and responsibilities of directors
  • Everything you need to do as a director
  • How to run an effective meeting
  • How to understand finance and accounts
  • Strategy planning and decision making techniques
  • The difference between limited liability and director liability
  • How to protect yourself in case things go wrong

Priced at £14.99, you can download the first three chapters absolutely free.

What is a Board of directors?

The board of directors is appointed to act on behalf of the shareholders to run the day to day affairs of the business. The board are directly accountable to the shareholders and each year the company will hold an annual general meeting (AGM) at which the directors must provide a report to shareholders on the performance of the company, what its future plans and strategies are and also submit themselves for re-election to the board.

 

The objects of the company are defined in the Memorandum of Association and regulations are laid out in the Articles of Association.

 

It is important that board meetings are held periodically so that directors can discharge their responsibility to control the company's overall situation, strategy and policy, and to monitor the exercise of any delegated authority, and so that individual directors can report on their particular areas of responsibility.

 

Every meeting must have a chair, whose duties are to ensure that the meeting is conducted in such a way that the business for which it was convened is properly attended to, and that all those entitled to may express their views and that the decisions taken by the meeting adequately reflect the views of the meeting as a whole. The chair will also very often decide upon the agenda and might sign off the minutes on his or her own authority.

 

The chairman of the board is often seen as the spokesperson for the board and the company.

 

Individual directors have only those powers which have been given to them by the board. Such authority need not be specific or in writing and may be inferred from past practice. However, the board as a whole remains responsible for actions carried out by its authority and it should therefore ensure that executive authority is only granted to appropriate persons and that adequate reporting systems enable it to maintain overall control.

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Appointment of directors

The ultimate control as to the composition of the board of directors rests with the shareholders, who can always appoint, and – more importantly, sometimes – dismiss a director. The shareholders can also fix the minimum and maximum number of directors. However, the board can usually appoint (but not dismiss) a director to his office as well. A director may be dismissed from office by a majority vote of the shareholders, provided that a special procedure is followed. The procedure is complex, and legal advice will always be required.

 

Find out more about how to become a company director.

Role of the board of directors

The role of the Board of Directors is to provide leadership to the company and to deliver shareholder value over the long term. The board's key purpose is to ensure the company's prosperity by collectively directing the company's affairs, whilst meeting the appropriate interests of its shareholders and stakeholders. It sets the company's values and standards, making sure they align with its strategic aims and desired culture.

 

In addition to business and financial issues, boards of directors must deal with challenges and issues relating to corporate governance, corporate social responsibility and corporate ethics.


The roles of the board of directors include :-

Establish vision, mission and values

  • Determine the company's vision and mission and purpose to guide and set the pace for its current operations and future development.
  • Determine the values to be promoted throughout the company.
  • Determine and review company goals.
  • Determine company policies

Brefi Group facilitates corporate retreats to help boards review strategy or develop vision, mission and values statements.

 

Set strategy and structure

  • Review and evaluate present and future opportunities, threats and risks in the external environment and current and future strengths, weaknesses and risks relating to the company.
  • Determine strategic options, select those to be pursued, and decide the means to implement and support them.
  • Determine the business strategies and plans that underpin the corporate strategy.
  • Ensure that the company's organisational structure and capability are appropriate for implementing the chosen strategies.

Brefi Group's foundation programme includes modules to help you set strategy:

Delegate to management

  • Delegate authority to management, and monitor and evaluate the implementation of policies, strategies and business plans.
  • Determine monitoring criteria to be used by the board.
  • Ensure that internal controls are effective.
  • Communicate with senior management.

Brefi Group's foundation programme includes a module on delegation to management

 

Exercise accountability to shareholders and be responsible to relevant stakeholders

  • Ensure that communications both to and from shareholders and relevant stakeholders are effective.
  • Understand and take into account the interests of shareholders and relevant stakeholders.
  • Monitor relations with shareholders and relevant stakeholders by gathering and evaluation of appropriate information.
  • Promote the goodwill and support of shareholders and relevant stakeholders.

Duties and responsibilities of directors

Directors look after the affairs of the company, and are in a position of trust. They might abuse their position in order to profit at the expense of their company, and, therefore, at the expense of the shareholders of the company.

 

Consequently, the law imposes a number of duties, burdens and responsibilities upon directors, to prevent abuse. Much of company law can be seen as a balance between allowing directors to manage the company's business so as to make a profit, and preventing them from abusing this freedom.

 

Directors are responsible for ensuring that proper books of account are kept.

 

In some circumstances, a director can be required to help pay the debts of his company, even though it is a separate legal person. For example, directors of a company who try to 'trade out of difficulty' and fail may be found guilty of 'wrongful trading' and can be made personally liable. Directors are particularly vulnerable if they have acted in a way which benefits themselves.

  • The directors must always exercise their powers for a 'proper purpose' – that is, in furtherance of the reason for which they were given those powers by the shareholders.
  • Directors must act in good faith in what they honestly believe to be the best interests of the company, and not for any collateral purpose. This means that, particularly in the event of a conflict of interest between the company's interests and their own, the directors must always favour the company.
  • Directors must act with due skill and care.
  • Directors must consider the interests of employees of the company.

Find out more about becoming a company director.

Calling a directors' meeting

A director, or the secretary at the request of a director, may call a directors' meeting. A secretary may not call a meeting unless requested to do so by a director or the directors. Each director must be given reasonable notice of the meeting, stating its date, time and place. Commonly, seven days is given but what is 'reasonable' depends in the last resort on the circumstances

Fiduciary duties of directors

Directors owe a fiduciary duty to the corporation and, indirectly, to its shareholders. The principal components of this fiduciary obligation are the duty of loyalty and the duty of care.

  • A Director must only act within the powers as granted by the company’s constitution.
  • A Director has a prime duty to promote the company’s success (unless insolvent).
  • A Director must exercise independent judgment.
  • A Director must exercise reasonable care, skill and diligence in his/her role.
  • A Director must avoid conflicts between his/her role and his/her personal interests.
  • A Director cannot accept benefits from third parties which arise from his/her role.
  • A Director must always declare to other directors his/her personal interest in any transaction or arrangement which the Company proposes to enter into.

Would you like to learn more about directorship?

The New Directors Handbook does what it says on the cover: a practical, comprehensive guide to becoming an effective director.

"how to become more confident, more effective, more quickly.."

  • Roles and responsibilities of directors
  • Everything you need to do as a director
  • How to run an effective meeting
  • How to understand finance and accounts
  • Strategy planning and decision making techniques
  • The difference between limited liability and director liability
  • How to protect yourself in case things go wrong

Priced at £14.99, you can download the first three chapters absolutely free.

Types of Director

Non-executive directors

Legally speaking, there is no distinction between an executive and non-executive director. Yet there is inescapably a sense that the non-executive's role can be seen as balancing that of the executive director, so as to ensure the board as a whole functions effectively. Where the executive director has an intimate knowledge of the company, the non-executive director may be expected to have a wider perspective of the world at large.

 

The chairman of the board

The articles usually provide for the election of a chairman of the board. They empower the directors to appoint one of their own number as chairman and to determine the period for which he is to hold office. If no chairman is elected, or the elected chairman is not present within five minutes of the time fixed for the meeting or is unwilling to preside, those directors in attendance may usually elect one of their number as chairman of the meeting.

 

The chairman will usually have a second or casting vote in the case of equality of votes. Unless the articles confer such a vote upon him, however, a chairman has no casting vote merely by virtue of his office.

 

The chairman of the board is often seen as the spokesperson for the board and the company.

 

Since the chairman's position is of great importance, it is vital that his election is clearly in accordance with any special procedure laid down by the articles and that it is unambiguously minuted; this is especially important to avoid disputes as to his period in office. Usually there is no special procedure for resignation. As for removal, articles usually empower the board to remove the chairman from office at any time. Proper and clear minutes are important in order to avoid disputes.

 

Role of the chairman

The chairman's role includes managing the board's business and acting as its facilitator and guide. This can include:

  • Determining board composition and organisation;
  • Clarifying board and management responsibilities;
  • Planning and managing board and board committee meetings;
  • Developing the effectiveness of the board.

Find out more about director development and training.

 

Shadow directors

In many circumstances, the law applies not only to a director, but to a 'shadow director'. A shadow director is a person in accordance with whose directions or instructions the directors of a company are accustomed to act. Under this definition, it is possible that a director, or the whole board, of a holding company, and the holding company itself, could be treated as a shadow director of a subsidiary.

 

Professional advisers giving advice in their professional capacity are specifically excluded from the definition of a shadow director in the companies legislation.

Are you ready to make a positive contribution at board level?

Join the Directors' Academy for instant access to:

  • Free reports to launch you on your development journey
  • More than 20 videos answering questions from directors around the world
  • Timely, topical Webinars on Wednesdays to increase your awareness
  • PLUS, courses, resources, news and events to achieve more confidence, more competence, more quickly

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