Ministry of Public Enterprises recently asked the public and various professionals to indicate their willingness to serve as directors on the boards of public enterprises. Being appointed as a director of a public enterprise can be financially rewarding and could result in your name and photo being published in a newspaper. The question arises whether we really know what the responsibilities and duties of acting as a non-executive director really entails? Maybe we should start with a short explanation of what the difference between non-executive and executive directors are. The most basic difference between the two forms of directorships are that an executive director is a salaried employee of the company and works for the company in question on a full-time basis. A non-executive director is usually not an employee of the company and acts as a member of the board of directors on a part-time basis. This is the most basic difference between the two forms of directorship. The Corporate Governance Code for Namibia will differentiate between different forms of non-executive director definitions and executive director definitions, but in the end the basic difference are as noted above.
What is the difference between ‘Chief Executive Officer and a Managing Director? Most companies will have either of these positions. A Chief Executive Officer is not an appointed director and will therefore not be attending board meetings unless requested to do so by the board. The Chief Executive Officer will not usually have a voting right on directors meetings. The Managing Director is a formally appointed director, in terms of the Companies Act, and will have the same voting rights as any other member of the board. Companies can decide which of these two positions and titles they prefer, but in the end the job description will remain more or less the same for both these positions. The responsibilities of a non-executive director do not only include the attendance of directors meetings as and when required. The non-executive director may also be required to represent the board on a sub-committee, like the audit committee or the investment committee.
When attending a board meeting, the non-executive director will be required to be prepared for the meeting by having read the applicable meeting documentation provided to the member in advance and being up to date with the industry of the specific company in question. The non-executive board member has a fiduciary duty to always act in the best interest of the company and nobody else. The non-executive board member must declare all interests in contracts in order to ensure that such member always remains free of conflict of interest in order to exercise his/her fiduciary duty. A non-executive board member also carries the responsibility as laid down by the Companies Act to act with due care and diligence when making decisions regarding the company they are representing.
A non-executive board member can also be held responsible for his/her actions, both internally and externally, and it is therefore critically important for non-executive board members to ensure that they are well informed when making decisions. Unfortunately, Namibia has had limited cases where board members have been held accountable for decision made and/or for the results of such decisions. Board members will only start taking their positions seriously when they are held accountable by the court or the shareholder of the company in question.
As can be seen from the short summary above, having been appointed as a non-executive director carries a burden of responsibility. We will continue with this discussion next week when we look at some of the requirements of the Corporate Governance Code for Namibia.