2.4.4 Types of directors on UK boards

A typical British board has about 2 to 4 executive directors, a chairman and 5 to 7 outside directors.1 These numbers, the separate role of the chairman and the fact that the outside directors are in the majority are regarded as important factors in achieving a balanced board. These are essential elements of the Cadbury Code and subsequent codes. The types of directors are described below:

Some members of the board are executive directors: such as the CEO, CFO and COO and the Chief Marketing Director. They carry on the business, work full time and monitor the execution and performance of the company's activities. The CEO is clearly the boss of the other executive directors. As members of the board they are also, as individuals, involved in the debate about the development of the overall strategy.

99% of UK listed companies have a separate chairman, who is not CEO. The chairman is not an executive director and not an independent director. His role will be discussed separately in detail at 2.4.11 and 2.5.7 below. He is meant to be an independent director, i.e. independent from the business and from the CEO, at the moment of his appointment. However, as he is generally physically present at the company about two days a week and because he will in due course form a team with the CEO, each in their separate roles, he does not remain independent. He has specific roles as leader of the board, leader of the discussion on strategy, leader of the communication with shareholders, and leader in succession planning, evaluation and induction of the board and all its members.

Non-executive directors are also called outside directors. Sir Adrian Cadbury prefers the term outside director as non-executive director for him is too much of a negative description. Many writers abbreviate Non-executive Director to NED. NED itself has become a household word, which I will use mostly hereafter.

The heart of the matter for outside directors is that they have at least the dual function2 of:

This aspect of a dual function is described below in sub-section 2.4.6.

If there is a separate chairman, one of the NEDs is called the senior independent director (SID). The role of this director is to take charge of the evaluation of the chairman. See 2.5.7(ix) and 2.5.9 below.

In the UK the company secretary has an important function in company law. In the 1948 Companies Act the company secretary was defined as an officer of the company. The function developed into the chief administrative officer of the company. He has a pivotal role in communication among directors. The development of the role is also evidenced by the establishment of the Institute of Chartered Secretaries and Administrators (ICSA).3

In the 1980s the role of the company secretary was diluted somewhat, because the functions of general counsel and company secretary were often combined and the work of the company secretary would be delegated to a lower secretary. They would concentrate on monitoring.4

With the advent of Corporate Governance Codes and emphasis of nonexecutives and the chairman being involved in strategy development, the now again independent function of the company secretary has become important to assist the chairman in promoting corporate governance and added value of NEDs.5 He is sometimes called "the conscience of the company 6 .

All public companies must have a company secretary and there are requirements of legal training and/or experience.7 The company secretary assists the chairman in the preparation of the annual reports and the annual accounts.8

The Guidance on Board Effectiveness of March 2011 also underlines the importance of the company secretary.9 The interaal auditor should carry weight as well as be an employee and have direct access to the chairman.