What are the roles of directors in a public company?

The term ‘director’ is used to refer to the directors of a company. It is an informal way of saying: that the persons who have the right to determine the affairs of the company.

A company is a legal fiction, and the person named as the company’s director is considered to be the ‘proprietor’ of the company. However, the directors do not own the company. Instead, they are given some of the powers of ownership, including the power to invest and trade. In reality, the directors are appointed by the company’s ‘proprietor’ and do not have real ownership of the company.

Let’s discuss the various roles of directors in a public company and what their various rights and duties are on behalf of shareholders.

Duties and Functions of Directors

The duties and functions of directors in a public company can vary based on legal requirements and the company’s specific governance structure. However, here are some common roles and responsibilities:

Fiduciary Duty: Directors have a fiduciary duty to act in the best interest of the company and its shareholders, including making decisions that are financially sound and sustainable. They must exercise their powers honestly, in good faith, and with reasonable care, while taking into account the interests of all stakeholders, such as employees, customers, and suppliers. Additionally, directors must be aware of potential conflicts of interest and disclose them to the board and shareholders.

Strategy and Planning: Directors are responsible for setting the company’s overall strategic direction, including approving key objectives and plans, and regularly monitoring progress towards those goals. In addition to setting strategic direction, directors also oversee the management team, evaluate risk management policies, ensure compliance with legal and regulatory requirements, and act in the best interests of shareholders. They play a crucial role in guiding the company towards success and sustainability.

Governance Oversight: Directors play a crucial role in overseeing corporate governance practices, such as ensuring compliance with laws, regulations, and ethical standards. They may establish committees (e.g., audit or compensation committees) to help fulfil governance obligations.

Risk Management: Directors are responsible for identifying and managing risks that could affect the company’s performance or reputation. This includes working with management to implement effective risk management systems and periodically reviewing risk mitigation strategies.

Financial Oversight: Directors are responsible for safeguarding the company’s financial well-being by reviewing financial statements, approving budgets, monitoring financial performance, and ensuring compliance with accounting standards.

Board Leadership: The director serving as chairperson leads board meetings, sets agendas, ensures effective communication among directors, interacts with external stakeholders (such as regulators or investors), and fosters a culture of open discussion and decision-making.

CEO Selection & Performance Evaluation: Directors often participate in selecting the CEO or other top executives. They also oversee executive compensation plans and conduct regular evaluations of senior management performance.

Shareholder Relations: Directors often engage with shareholders to understand their concerns or interests through channels such as shareholder meetings or proxy voting.

Legal Compliance: A public company needs to comply with a number of statutory requirements as prescribed by the company law as well as the government of that particular country. Directors ensure that the company operates within the boundaries of applicable laws, regulatory requirements, industry standards, and internal policies.

Disclosure Obligations: Directors assist in making accurate and timely disclosures of relevant information to shareholders, regulators, and the public. They also support transparency initiatives that promote trust and stakeholder confidence.

Also Read: What are the functions of an HR manager?

Conclusion

It’s important to note that this is not an exhaustive list, as directors’ roles may differ based on company size, industry, country-specific corporate governance codes, or specific circumstances. Directors should act in the best interest of the company while considering the perspectives of various stakeholders.