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When is a director not a director?

By Joy Allen, Leading Governance Ltd

We’re often asked by trustees new to the charity sector to explain the difference between being a board member, and being a chief executive or other senior manager in the sector.  In their world, perhaps a private company or a public body, it’s normal for the organisation to have a unitary board, with executive and non-executive directors having equal status and responsibilities. While their non-executive directors are part time, they have the same legal duties as their colleagues, and are often paid for the role. The principle of collective responsibility applies to the board, and it’s really important that all board members know the role when they take it on.

Many of the charities we work with are incorporated as a company limited by guarantee as well as being a charity. Over the years, we’ve had many questions about the term ‘director’ – what it means, when it should be used, what legal duties it carries …  We thought it may be useful to offer a brief guide, and to highlight why it’s important for everyone involved in running a charity to know.

Directors and trustees take on legal duties when they sign up for the role. That’s what makes them different from senior managers of the charity. Even though our board members are usually unpaid, the word ‘volunteer’ can be misleading, implying that they can opt in and out ‘when they have time’ (actually, I can’t stand that phrase – we all have the same amount of time in our week, and we MAKE time for the things we have decided are our priorities!). It’s important that everyone involved knows what the term ‘director’ means, and why that’s important.

A ‘de facto director’ is someone carrying out the role of a director, whatever their job title is. In the case of the former charity Kids Company, for example, there was much discussion about whether or not the CEO at the time had been making decisions that would normally be made by directors. If that had been found to be the case, the legal duties of a director would have applied, even though the person was not signed up as a director at Companies House. 

A ‘shadow director’ is an external party in accordance with whose directions or instructions the directors of a company are accustomed to act. Banks have sometimes been accused of that; also parent companies in a group structure who act as ‘puppet master’ to the directors of the subsidiary company. In both cases of de facto director and shadow director, there is a risk that the legal duties are being taken on without the formal protection of proper directorship attached to the role, including directors and officers liability insurance.

An ‘associate director’ is someone with the word director in their job title such as: director of marketing, or finance director.  While it’s not illegal to use the word, there is a slight risk that someone from a different sector may assume when they see those titles that they are dealing with a board member, so it may be misleading.

To clarify for all involved who are (and are not) decision-makers in a board meeting, there are some basic methods we need to use, including:

  • At board meetings, the board members should be listed as ‘present’ and everyone else in the room should be listed as ‘in attendance’ – they are there to bring information to the board, to take direction from the board, and to answer any questions to support board members to fulfil their duties.
  • The chair of the board should ensure that their language is unambiguous, and they should remind everyone of the different role often. They may say things like ‘We’ve heard the analysis of the options from our CEO and other managers; now it’s time for the board to consider which option is best and make the decision’.

Those practical tasks help to remind board members who are more used to other sectors that we don’t have a unitary board.  Ultimately, that provides protection for the charity and everyone involved.

 A Leading Governance membership is a valuable online resource with practical tips and materials to help you improve governance, develop a productive relationship with your board and set values that guide your organisation’s culture. Find out more.

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