THE CEO’s GUIDE TO CHOOSING A BOARD OF DIRECTORS

Dear Subscriber,

Limited Liability Companies are basically owned by Shareholders who then appoint a Board of Directors to oversee the affairs of the Company. The Board of Directors’ key purpose is to ensure the Company’s prosperity and in achieving this they must deal with challenges and issues relating to corporate governance, corporate social responsibility and corporate ethics.

As a CEO, building the Board of Directors for your Company is very important as they will help shape the future of your company and mistakes in selection of the Board can be devastating.

This week we consider the responsibilities and criteria for selecting your Board of Directors.

INTRODUCTION

Directors may or may not be shareholders of the Company and it is worthy of mention that the Chairman and Managing Directors roles should not be confused as types of Directors but rather be seen as officers of the Board. In essence for a person to be appointed as either the Chairman or the Managing Director of the Company, the person must first and foremost be appointed as a Director.

RESPONSIBILITIES OF DIRECTORS

Directors look after the affairs of the Company, and are in a position of trust. They might abuse their position in order to profit at the expense of their company and consequently the law imposes a number of duties, burdens and responsibilities upon Directors, to prevent them from abusing this freedom.

Section 279 of the Companies and Allied Matters Act provides for the duties of Directors. It provides inter alia:

1. A Director of a Company stands in a fiduciary relationship towards the company and shall observe the utmost good faith towards the company in any transaction with the Company or on the Companies behalf. 
2. A Director shall also act with utmost good faith and shall owe a fiduciary relationship when acting as agent of a particular shareholder or such shareholder is dealing with the company’s securities. 
3. A Director shall act in the best interest of the Company so as to preserve its assets, further its business and promote the purposes for which such Company was formed. 
4. The Director in performing his/her duties shall act to provide the interest of the company’s employees and the company’s members. 
5. A Director must exercise his/her powers for the purpose to which it was specified. 
6. A Director shall not fetter his discretion to vote in a particular way. 
7. A Director who delegates his powers shall not delegate such power in such a way as to amount to an abdication of duty. 
8. No provision shall relieve any director from the duty to act in accordance with this section or relieve him from any liability incurred as a result of any breach of the duties conferred on him. 
9. All duties imposed on a Director by the act shall be enforceable against the Director by the company. 

WHAT YOU SHOULD CONSIDER IN SELECTING YOUR BOARD OF DIRECTORS

1. When selecting Board members, consider how they will function in the long term.
2. Make the title and description of each Board member explicit from the beginning.
3. Find people who understand the vision of the Company.
4. Make sure that they understand that they are there to protect the company and not their own best interest.
5. Go for those who are smart and brave enough to know when to agree or disagree during decision making process.
6. Try to create a sense of diversity among the group in terms of ideas, experience, and skill set.
7. Put in place a Service Agreement which details in clear terms the expectations of the Company from Directors

TAKEAWAY

One of the decisions CEO’s should make is whether a fiduciary Board of Directors is needed or whether an Advisory Board is better suited. A fiduciary Board of Directors has the responsibility to represent the interest of owners/ shareholders whilst Advisory Board members are selected for their specific industry experience and network. It could also be a mix of the two types.

The content of this document is solely for information purposes only and should not in any way be construed as a legal opinion.  If you require specific legal advice on any of the matters covered in this article please contact a professional.

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Cheers,to a fruitful week.