Company directors fall broadly into six categories.
- Executive Director - is both a director on the board and an officer of the company.
- Non-Executive Director - is not an officer of the company.
- Shadow Director is one who discharges the duties of a company director without formally holding a place on the board.
- Alternate Director - serves as a substitute for a company director.
- Nominee Director is one who is nominated to the board by a financial institution.
- De Facto Director is similar to a shadow company director, performing the role of a director without formal endorsement.
The minimum number of company directors per board varies from a country to country. In European countries, for instance, the minimum number of directors per company is close to 3 and the average size of the board is close to twelve members. Most European countries also encourage companies to have adequate number of non-executive directors on the board.
Company Directors' Role in a Company
The company directors play a critical role in the success of a company. Every company has a board of directors. The exact role of the board of directors varies from country to country, but broadly, the board is responsible for setting goals and providing the means to achieve those goals. The board takes interest in all strategic issues, leaving the day-the-day management of the company to the top management led by the chairman and the chief executive officer. So, the board is both the ultimate decision-making body and an upholder of company's values.
Technically, the duties of company directors include recruitment and termination of top officers; ensuring compliance with laws and protecting the integrity of accounting, audit and financial reporting systems. The Sarbanes-Oxley Act of 2002, for instance, makes the board take active interest in the internal controls of a company. Across the board, the failure to comply with regulations lead to penalties and in some extraordinary cases, even imprisonment.
In previous years, most boards used to merely endorse the decisions of top management, but that has changed in the past few years. Now boards do not hesitate to replace even top officers. In early 2005, the board of Hewlett-Packard Company let go of Carly Fiorina, the chairman and chief executive officer, due to differences over the execution of company's strategy. The change in the approach of company directors is due to growing importance of corporate governance worldwide.
A raft of corporate scandals has forced most countries to put in place a corporate governance framework. Generally, developed countries pay more attention to corporate governance than developing countries. Consequently, company directors in developed countries shoulder more responsibilities than their counterparts in emerging economies.
In the USA, for instance, the government introduced the Sarbanes-Oxley Act in 2002 to restore public confidence in corporate entities. The Sarbanes-Oxley Act aims at improving the 'quality and transparency in financial reporting and independent audits and accounting services for public companies by thrusting additional responsibilities on company directors, executives and auditors. Similar efforts are underway in other parts of the world. The 'combined code of corporate governance' for example applies to all companies listed on the primary market of London Stock Exchange. As a result of the growing number of corporate governance codes worldwide, the board of multinational companies are now devoting as much attention to regulatory compliance as they do to shareholder wealth maximisation.