Directors Role In Corporate Governance

CHAPTER FOUR
APPLY THE GOVERNANCE FRAMEWORKS ELEMENTS IN A BUSINESS CASE

GOVERNANCE FRAMEWORK AND STRUCTURES
ROLES OF BOARD OF DIRECTORS – MEMBERSHIP & FUNCTIONS & COMMITTEES OF THE BOARD
BOARD OF DIRECTORS:
Meaning of Directors
In general terms, a director is someone appointed to take responsibility for the policy formation and control of a company because of particular ability and expertise in an industry. Directors advise management of the company on behalf of the shareholders (the owners of the company). However, the exact position of 'director' is hard to define, as no formal definition, either statutory or judicial, of the term has been given. The judicial pronouncements have described them as
(i) agents,
(ii) trustees, or
(iii) managing partners.

Types of Directors
Various types of directors that can exist in a company are:
1. Ordinary Directors
Ordinary directors are also referred to as simple directors who attends Board meeting of a company and participate in the matters put before the Board. These directors are neither whole time directors nor managing directors.
2. Managing Directors
Managing Director is a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of directors or, by virtue of its Memorandum or Articles of Association, is entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called.
3. Executive Directors
An executive director is a director who performs a specific role in a company under a service contract which requires a regular, possibly daily, involvement in management. Such a director may also be an employee of the company. This fact may create a potential conflict of interest which in principle a director is required to avoid. To allow an individual to be both a director and employee the articles usually make express provision for it, but prohibit the director from voting at a board meeting on the terms of their own employment.
4. Non-executive Directors
A non-executive director does not have a function to perform in Notes a company's management but is involved in its governance. They are subject to the same legal duties as executive directors. In listed companies, corporate governance codes state that boards of directors are more likely to be fully effective if they comprise both executive directors and strong, independent non-executive directors.
5. Shadow Directors
According to company law, a director is a person who is responsible for the overall direction of the company's affairs. This means any person occupying the position of director, by whatever name they are called. A shadow director has also been defined as any person in accordance with whose instructions the directors are accustomed to act. However this does not include professionals such as accountants or solicitors. A person might seek to control a company as a director but avoid the legal responsibilities of being a director. The law seeks to prevent this by extending several statutory rules to shadow directors. Shadow directors are directors for legal purposes if the board-of-directors is accustomed to act in accordance with their directions and instructions.
6. Additional Directors
Additional Directors are appointed by the Board between the two annual general meetings subject to the provisions of the Articles of Association of a company. Additional directors shall hold office only up to the date of the next annual general meeting of the company. Number of the directors and additional directors together shall not exceed the maximum strength fixed for the Board by the Articles.
7. Alternate Director
An Alternate Director is a person appointed by the Board if so authorised by the Articles or by a resolution passed by the company in the general meeting to act for a director called "the original director" during his absence for a period of not less than three months from the State in which meetings of the Board are ordinarily held. Generally, the alternate directors are appointed for a person who is Non-resident Indian or for foreign collaborators of a company.
8. Professional Directors
Any director possessing professional qualifications and do not have any pecuniary interest in the company are called as "Professional Directors". In big size companies, sometimes the Board appoints professionals of different fields as directors to utilise their expertise in the management of the company.
9. Nominee Directors
The banks and financial institutions which grant financial assistance to a company generally impose a condition as to appointment of their representative on the Board of the concerned company. These nominated persons are called as nominee directors.