What is the role 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: 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 actually 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.

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:

1. Fiduciary Duty: Directors have a fiduciary duty to act in the best interest of the company and its shareholders. They must exercise their powers honestly, in good faith, and with reasonable care.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. Shareholder Relations: Directors often engage with shareholders to understand their concerns or interests through channels such as shareholder meetings or proxy voting.
9. Legal Compliance: Directors ensure that the company operates within the boundaries of applicable laws, regulatory requirements, industry standards, and internal policies.
10. 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.

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.