The Business Structure

The two principal organs of a registered company are the shareholders and the Board of Directors. The shareholders are the owners of the company whilst the directors are the operating minds of the company. A director is different from a shareholder even though a shareholder can also act as a director. A director need not be a shareholder. Note however that in some industries, the Managing Director is required to hold certain percentage of the company’s shares e.g insurance brokerage industry.
Small and Medium Enterprises (SMEs) often have a simple structure at the top, given the lack of separation between ownership and control. In other words, most SMEs are managed or run by their owners. The success of a company is largely dependent on the quality of the handlers (directors). A company is made up of its people, and this is especially so for smaller businesses. The director(s) can hold massive influences in the performance of the company as they are heavily involved in the strategic planning and execution of the business plan. Regardless of the size of a company, it is necessary that the directors, especially the managing director, are equipped with the requisite skills to run the affairs of the company.
Who is a director?
A director is an appointed or elected member of the Board of Directors of a company who, with other directors, has the responsibility for determining and implementing the company’s policy. Section 244 of the Companies and Allied Matters Act, 2004 (CAMA) defined directors as persons duly appointed by a registered company to direct and manage the business of the company. A Board of Directors is a group of individuals elected to represent the shareholders’ interests and ensure that the company’s management acts on their behalf.
Type of Directors
Chairman – He is the Head of the Board of Director (“Board”). He is expected to preside at Board meetings or delegate the same to another director if he is unable to attend a meeting. The Chairman is entitled to a second casting vote in the case of equality of votes.
Managing Director – He is in charge of the day-to-day running of the business. He is elected by the Board and can be removed by the same. The removal of a Managing Director must be in accordance with the Company’s Article of Association or the relevant provisions of CAMA, if the Article is silent on the procedure for removal. The Managing Director is saddled with the responsibility of managing and overseeing the performance of the business and reports back to the Board. He is usually an employee of the Company. Shadow Director: Is a person on whose instructions and directions the directors of a company are accustomed to act.
Executive Director – Is a working director of an organization who is usually also its full-time employee, and has a specified decision making role as director of finance, marketing, operations, etc.
Non-executive Director – Is a member of a company’s Board who is not part of the executive team. A non-executive director typically does not engage in the day-to-day management of the organization, but is involved in policymaking and planning exercises.
Role of the Board of Directors
Firstly, a Board of Directors is meant to offer a set of complementary skills to the shareholders. This could include international business experience, experience in managing and growing business, and experience in a wide range of industries. Essentially, having a diverse set of skills and experience on the Board means that the Board is able to approach an issue from different perspectives such as culture, age group, technological intensity and so forth, while tapping on each of their networks of contacts, and therefore address the needs of a myriad of customers.
Secondly, the Board should be able to offer an objective approach to decision making. No matter how professional the shareholders are, they will always have some attachment to their business, which is closely tied to the reason for starting the business in the first place. This means that at times, they might be reluctant to make certain decisions or relinquish control of their business, even if it may make sense from a company’s point of view. That is where the Board of Directors should be able to make the call in tough decisions, and be dispassionate in their decisions.
Furthermore, it is the responsibility of the Board to ensure that the set strategic objectives and plans of the company are met. It is incumbent on the Board to oversee the activities of the Managing Director and make sure that the Company is operated within the ambit of law.
Qualities of a Director
Emotional Balance: A director should have the ability to listen to others and even challenge them constructively to establish their key points clearly, without jumping to premature conclusions, interrupting, ignoring them or closing down the discussion without a sound hearing. He should be able to express himself clearly, relevantly and factually, without being defensive or aggressive, while still being appropriately assertive.
• Business Judgment: The ability to absorb a large amount of facts and be able to separate useful information from random or misleading data is must have for a director. He should be able to rise above the detail, without ignoring it, to identify underlying trends and explore possible reasons for such.
• Business Awareness: A director need not be an ‘expert’ in the specific business. But the ability to learn is clearly vital, as is the wider understanding and experience of how businesses work. A director should possess basic accounting skills such as balance sheet and cash flow forecasts, the principles of budgeting and financial reporting, and even, with guidance, should know how investment decisions may be taken objectively.
• Problem Solving and Innovation: Running a successful business is rarely about maintaining the status quo, but in seeking continuous improvement, finding better ways of doing things and maintaining and raising standards. A director must be able to learn from the past and seek novel solutions. He should also be able to set high standards and help others to achieve them.
In closing, directorship mirrors the company. People won’t deal with a business with questionable characters as directors. To operate a well organised business entity, sentimentalism should be separated from professionalism. The shareholders should not solely direct the affairs of the company if they lack the requisite skills. They should engage the service of at least one expert, as a co-director. A business should be driven, not necessarily by the owners, but by persons with the requisite skills to take deliver!
So if you have the business idea and capital but lack the know-how, why not partner with an expert. If you must reserve the directorship for yourself and loved ones, then the above listed qualities amongst others are a must-have.
If you have any enquiries about this article or require further information, please contact the writer – eki.durojaiye@lawbrief.org