Board of Directors

Introduction to the Board of Directors

Before we refer corporate governance issues in much more detail, it might be useful to make clear the role and composition of the board of directors. The board governs the company for the shareholders and is accountable for promoting their interests. It is led through a chairman and for a listed public company; the board will generally involve both executive and non-executive directors.

The chairman

The chairman is the senior director. The chairman is elected through the other directors and chairs board meetings.

Executive directors

Executive directors are salaried employees along with senior management responsibilities. The finance director of mainly large companies, for instance, is a full-time employee. Additionally to being a board member and taking part in board decisions, Executive directors are responsible for managing the finance function within the company.

Non-executive directors

Non-executive directors work purely like directors; they are not full-time employees of the company. They frequently have business experience achieved from past or present activities regarded with businesses and/or administration, distant from the company concerned. Several non-executive directors are, at similar time, directors of other companies. The role of non-executive directors has taken on rising importance in recent years and reflects the increased significance given to corporate governance issues.

The UK (United Kingdom) Corporate Governance Code draws a difference among non-executive directors and independent non-executive directors. The word 'independent' in this context involves freedom from other major links to the company, to its directors and to main shareholders. As per to the UK Code, for instance, a non-executive director could not be considered as independent if that person had been an employee of the company regarded in the previous five years.

Though, both types of non-executive should require taking an independent attitude in the direction of their roles. Independence of mind is very important for any non-executive director. They should be capable to bring an objectivity of method that can be hard for executive directors whose working life is so bound up in the affairs of the company. Certainly, this is a main reason for containing non-executive directors.

To try to make sure an effective existence of independent non-executive directors, the UK (United Kingdom) Code states that, for large listed companies, minimum half the board, not including the chairman, should contain independent non-executive directors. The chairman has to be an independent non-executive director, at the time of being appointed. Minimum two independent non-executive directors should be on the board, for smaller listed companies.

Although executive directors are much more deeply involved in running a company than non-executive directors, both have the same legal obligations towards the shareholders of the company.

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