Directors Flashcards
- Chair of the Board
Role: Leads the board, ensures effective board operation, sets agendas, maintains governance standards.
Functions:
- Facilitates effective contribution by all directors.
- Manages board meetings and ensures information flow.
Experience: Senior leadership, diplomacy, corporate governance.
UKCGC Rule: Should be independent on appointment.
Benefits:
- Company: Ensures leadership without operational bias.
- Board: Drives productive board culture.
- Shareholders: Ensures strategic leadership is unbiased by management interests.
- Chief Executive Officer (CEO)
Role: Leads the company’s business operations; accountable to the board.
Functions:
- Develop and implement corporate strategy.
- Manage day-to-day operations.
Experience: Deep industry and operational expertise.
UKCGC Rule: CEO and Chair roles should be separate to avoid excessive power concentration.
Benefits:
- Company: Focused operational leadership.
- Board: Clear accountability between governance and execution.
- Shareholders: Protection from autocratic leadership styles.
- Senior Independent Director (SID)
Role: Provides a governance safety valve; acts as intermediary between board, chair, and shareholders.
Functions:
- Support and challenge the chair.
- Lead evaluation of chair’s performance.
Experience: High independence and strong governance background.
UKCGC Rule: Must be independent; serves as an escalation route for shareholder concerns.
Benefits:
- Company: Provides stability during governance issues.
- Board: Assures ongoing review of leadership effectiveness.
- Shareholders: Alternative contact if concerns with leadership arise.
- Independent Non-Executive Directors (INEDs)
Role: Bring independent judgment, objectivity, and oversight.
Functions:
- Challenge management proposals.
- Sit on and chair important committees (audit, remuneration, nomination).
Experience: Broad commercial, financial, and risk management expertise.
UKCGC Rule: At least half of the board (excluding chair) should be independent NEDs.
Benefits:
- Company: Ensures robust decision-making and avoids “groupthink.”
- Board: Strengthens governance and risk management.
- Shareholders: Protects minority interests and promotes transparency.
- Non-Executive Directors (NEDs)
Role: Provide external perspective; support and challenge executive management.
Functions:
- Monitor executive management’s performance.
- Help set company strategy.
Experience: Senior business experience, but may not meet strict independence tests.
UKCGC Rule: Strong presence of NEDs ensures independent scrutiny.
Benefits:
- Company: Access to external advice and diverse perspectives.
- Board: Greater challenge to executives’ proposals.
- Shareholders: Assurance that management is properly overseen.
- Executive Directors (Other than CEO)
Role: Senior managers with day-to-day operational responsibilities (e.g., CFO, COO).
Functions:
- Manage functional areas like finance, operations, marketing.
- Execute the company’s strategy.
Experience: Technical, operational, financial management expertise.
UKCGC Rule: Executive directors should not dominate the board; balance with NEDs is crucial.
Benefits:
- Company: Brings real-world insight into board discussions.
- Board: Provides detailed operational updates.
- Shareholders: Enhances understanding of company operations at board level.
- Company Secretary
Role: Facilitates board operations and compliance with governance requirements.
Functions:
- Manage board processes.
- Advise on governance matters.
Experience: Legal, compliance, and governance expertise.
UKCGC Rule: Must support the chair and the board; neutral role.
Benefits:
- Company: Ensures compliance and avoids governance failures.
- Board: Provides access to critical governance advice.
- Shareholders: Reinforces good governance practices.
Why Must There Be at Least as Many Non-Executive Directors (NEDs) as Executive Directors? (UKCGC Rule)
- Prevents Executive Control: Stops management domination; ensures fair decisions for shareholders.
- Strengthens Independence: Secures proper scrutiny and trusted, independent board committees.
- Adds Expertise: Brings wider skills and challenges thinking, avoiding “groupthink.”
- Builds Confidence: Boosts reputation, supports ESG goals, and reassures investors.
Final hierarchy
🔺 Chair of the Board
🔺 CEO
🔺 Senior Independent Director (SID)
🔺 Independent Non-Executive Directors (INEDs)
🔺 Non-Executive Directors (NEDs)
🔺 Executive Directors (other than CEO)
🔺 Company Secretary (Officer, not a board member)
