2.5.3.2 Board of directors

A CIC limited by guarantee and/or by shares is governed and directed by a board of directors, which is responsible for the exercise of daily management and/or which employs managers to undertake management activities. It is a statutory necessity imposed by Section 154 of the 2006 Act that plcs have at least two directors who are either natural or legal persons.1 However, in the case of private companies a minimum of one director is required. The rights and the powers of directors are conferred mainly by the company’s AoA in conjunction with the statutory duties set out in the 2006 Act and principles emanating from common law.2 The same rules apply to CICs, which are either plcs or private limited liability companies.

Limited liability companies in the UK and, consequently, CICs are subject to the one-tier board system which provides for the appointment of various types of directors within the context of a single unitary board, i.e. de jure and de facto directors, executive and non-executive directors, and/or shadow directors. The 2006 Act contains provisions regarding the appointment of the first directors of a company in the application for registration, which following registration are deemed appointed to office.3 All CICs are obliged to include provisions in their constitutional documents regarding the appointment and the removal of directors.4 CICs are also prohibited from permitting any person other than a member and/or director to appoint a director.5 Therefore, directors can only be appointed by the members and/or directors of the CIC with the exception of the statutory stipulation empowering a director to be appointed by the Regulator where the ‘default conditions’ are satisfied. Here, Sections 41(2) and 45 of the 2004 Act regulate this supervisory power of the Regulator to appoint directors of the CIC (see Sub-section 2.6).6 What is more, the CIC members play a significant role in monitoring and safeguarding together with the Regulator the directors’ activities and their extent in fulfilling the CIC objectives. Additionally, the CIC Regulations of 2005 encourage CIC directors to consult those affected by the CIC’s activity in corporate governance and in decision-making. The outcome of these consultation processes should be included in the CIC report (see Sub-section 2.6).7 Such provisions incentivise rather than oblige CICs to undertake a minimum of formal or informal stakeholder consultations in its corporate governance and decision-making processes.8