When analysing the structure of a business, it is crucial to understand the directors’ role within a company. Different companies have different hierarchies, and therefore, it is also vital to understand that there are different types of directorship.
The Primary Responsibility of a Director
A director’s primary duty is towards shareholders and ensuring compliance with general and specific laws relating to the company’s operations.
If a company becomes insolvent, a director’s role expands to include the interest of creditors, including employees for whom the company still owes money.
Directors usually report to the Chief Executive Officer of a company and sit on the board. A Chairman heads the board, which is usually a non-executive role tasked with the organisation’s overall direction.
An organisation often employs a managing director to be hands-on in the running of the business, oversee salary and payroll, and get involved in targeted recruitment. The managing director manages the board of directors, leads the company’s overall performance, and reports back to the chairman and the board.
Executive directors play significant roles in the specific operations of a company. Common posts include Finance, Human Resources and Sales & Marketing directors. Each director manages their particular department to ensure that tasks, objectives and Key Performance Indicators are met. Executive directors also sit on the board.
Executive directors are often seen as the top tier of management for employees who may wish to discuss grievances, opinions of company strategy and/or issues holding the company back.
Non-executive directors are brought in to look at the business from an objective outside point of view. Because they are not directly part of the business, they can often analyse and propose impartial strategies that in-house directors might overlook.
Directors must exercise powers and duties with care and diligence, particularly about the company’s financial situation. They also have the responsibility to carry out their duties in good faith and in the company’s best interests.
They must not use their position to gain an advantage for themselves or to cause detriment to the company.
Another fundamental responsibility that directors have is ensuring that the company’s records are always accurate and up to date for any purpose. This includes auditing, investigation and publishing of end of year financial results.