Company Directors - Owners or Managers?
Company Directors are critical cogs in making sure that The Company, one of the world's great inventions, works. Companies cannot function without company directors. In fact, they are one of the most important facets of the invention of a legal vehicle which bestows limited legal protections on the owners of the company. Smaller companies often have owner company directors - these are individuals who both work in the business and are controlling shareholders. In bigger businesses company directors tend to be separate from the dominant or largest shareholders - but not always.
In fact, there are now some serious discussions going on concerning the role of these two respective parties. It has been reported for example, that FTSE 100 company directors cashed in hundreds of millions of pounds during the past year by selling shares in the companies they run. This illustrates how increasingly those who manage or direct the operations of the business also have some sort of ownership stake. Today sophisticated investors often track company directors share sales as there is often a corollary between these and the future share price of the company. Citigroup, for example, has analysed over 9,000 deals dating back to 1994. It found stocks tended to outperform the stock market by 1.2% in the first two months after a buy trade and by 2.9% over a four month period.
When company directors are also owners of publicly held companies their role can sometimes be confusing. Past example is that of Lord Black who was embroiled in further controversy over his management of Daily Telegraph publisher Hollinger International when it emerged that he used $8m (£5 million) of company money to buy thousands of historical documents related to former US president Franklin D Roosevelt. As company directors go, the use of company funds by Lord Black to buy the papers is likely to put further strain on the relationship between him as one of the company directors and Hollinger's shareholders, some of whom staged an open revolt earlier in 2003
In emerging markets the role of company directors is also under scrutiny. In Russia, behind the huge economic achievements of the past five years lie difficulties of equal size. Very rich men (the so-called oligarchs) both own and run companies. The relationship between these company directors and the state is still to be crafted. Answers to these questions depend very much on the actions of the Russian President. The jury is still out on whether Mr Putin has the ability to promote further market-oriented reforms to encourage entrepreneurship outside the extractive industries, while at the same time curbing the influence of both the state bureaucracy and the oligarchs. It is a big challenge, as straightforward liberalisation may simply create more opportunities for existing company directors who are already disproportionately wealthy and powerful.
Across the world the role and responsibilities of company directors are under review. What was once a safe sinecure for the good, the great and the retired is under considerable scrutiny from those in the business community who say that company directors have not been taking their duties sufficiently seriously. In this environment any new any person choosing take up this vocation must ask: What does the future hold for company directors?