Section 269 (1) of the Companies and Allied Matters Act (CAMA) 2020 defines a director as a person who is duly appointed by the company to direct and manage the business of the company. Every company is required to have a minimum of two directors (Section 271 CAMA).
Directors have been categorized over time into the following:
1. Executive Directors (ED): The ED is involved in the day-to-day running of the organization and is a full-time employee who makes decisions concerning the management of the company.
2. Non-Executive Directors (NED): A NED is not an employee and is not involved in the day-to-day management. A NED takes part in policy making and provides leadership direction to Management.
3. Independent Non-Executive Director (INED/ID): The INED is a director that is free of any form of relationship with the company, which may interfere with his/her unbiased judgment and decision making. The duty of the INED is to protect the interest of the stakeholders, providing insight for good governance and brining balance to the boardroom.
4. Managing Director (MD): The MD is involved in the daily operations, has power delegated by the Board and leads the Management team.
5. Shadow Directors: This is a director who is not officially appointed as one, but who possesses significant influence over the board decisions and processes. The Law recognizes such a person as a director.
6. De-Facto Directors: Similar to the shadow director, this director is not officially appointed as one but is held out by the company as a director and where such person carries out the functions and duties of a director, the company is bound by the acts of such director.
The first directors of are appointed by the subscribers to the Memorandum and Articles of Association and subsequent directors are appointed by the members of the company at the Annual General Meeting (AGM). The Board fills “casual vacancies” subject to ratification by shareholder sin general meeting.
Section 12 of the NCCG recommends that the Board should approve the criteria for appointing Directors, as recommended by the Committee responsible for nomination and governance. Such criteria should take into careful consideration the strengths and weaknesses of the Board, integrity, required competence and skills, knowledge and experience, capacity to undertake the responsibility as well as diversity, including gender, age, ethnicity, etc.
Effective performance of a Board’s leadership role requires that Directors stay up to speed with current realities and are up to speed with changes in the business environment. Thus, the Board needs to periodically refresh its membership to retain the ability to innovate and stay relevant.
One approach to ensuring Board refreshment is via term limits. It is the responsibility of the Board to ensure that it consistently has the appropriate skill sets to move the organization forward in the light of existing market realities. Section 2.5 of the NCCG (2018) recommends that “the Board should periodically invigorate its capabilities by ensuring the appointment of new members with relevant skills and fresh perspectives, while retaining valuable knowledge, skills, experience and diversity; and maintaining continuity” Whilst Section 12.8 of the NCCG 2018 recognizes that Non-Executive Directors should serve for a “reasonable” period of time, it further states that the tenure of Executive Directors should be determined by the Board, while the tenure of Independent Non-Executive Directors should not exceed three terms of three years each.
Reasonable tenure implies that the concept of “Director for Life” is not in contemplation.
Bringing it all together, the boardroom is where strategic decisions are made, and it is imperative that Boards are made up of competent high caliber individuals who offer a mix of skills, experience and background. The Board should periodically review its composition and refresh its membership to ensure it always has the appropriate complement of skills set and diversity to deliver on its mandate effectively. Boards are encouraged to pay sufficient attention to succession planning and develop medium-term succession plans that identify the balance of experience and skills that will be required over the short to medium term to maximise Board effectiveness. In doing so, the Board should consider term limits, independence as well as Chairman and CEO succession.
