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Role of executives and board

Role of executives and board

Postby dls » Wed May 07, 2014 8:22 am

The Minors report will be challenging for the co-op movement, but it reflects a fundamental issue in teh management of any company which (I find) has not found a 100% clear answer - what should be the balance between a board of directors and the executive team.
It seems to me that the boar should act first to design the direction of the company, and the executive set out how to get there. The board then acts to double check the executive - to ensure proper governance. Beyond that the directors (as directors)

Having said that as simply as I can, that balance is not stated in the same way elsewhere.
Any suggestions?
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Re: Role of executives and board

Postby atticus » Wed May 07, 2014 1:14 pm

The Companies Act 2006 codifies some of the duties of directors. It contains 7 general duties, as follows.

1. To act within powers.

2. To promote the success of the company.

3. To exercise independent judgement.

4. To exercise reasonable care, skill and diligence.

5. To avoid conflicts of interest.

6. Not to accept benefits from third parties.

7. To declare an interest in a proposed transaction or arrangement.

These duties are set out in Chapter 2 of Part 10 of the Companies Act 2006.

These duties are not new, and to a large extent have existed for many years under the common law. There is therefore a considerable body of case law about them.
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Re: Role of executives and board

Postby miner » Wed May 07, 2014 4:09 pm

dls wrote:The Minors report will be challenging for the co-op movement, but it reflects a fundamental issue in teh management of any company which (I find) has not found a 100% clear answer - what should be the balance between a board of directors and the executive team.
It seems to me that the boar should act first to design the direction of the company, and the executive set out how to get there. The board then acts to double check the executive - to ensure proper governance. Beyond that the directors (as directors)

Having said that as simply as I can, that balance is not stated in the same way elsewhere.
Any suggestions?


As someone who has been a Director and Managing Director, I can tell you that the actual functions within the rôles as you described are to some extent determined in practical terms by the size and nature of the organization, for example if the company is a subsidiary of a larger or overseas organization. I know a person who holds the title of "Chairman" (of the board) who is also effectively the Managing Director, the Chief Executive and the General Manager.

The Companies Act expresses it formally quite well, but in smaller organizations the board and the executive (to use your words) are often the same people. I find nothing wrong with how you expressed the theoretical structure, but it really only applies if the company is of a substantial size and is not a subsidiary of a larger entity.

In response to your question, the simple fact is that there is no clear universal answer to it.

Directors of large companies are often appointed so as to enhance the name of the company and/or brand names, not necessarily to actually do much else! That's the reality.
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Re: Role of executives and board

Postby atticus » Wed May 07, 2014 5:16 pm

With regard to that last sentence, any director in such a position should review his or her position carefully. They risk personal liability if they fail to discharge their responsibilities properly.
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Re: Role of executives and board

Postby jantra » Sat Jul 19, 2014 11:54 am

I think DLS's summary is quite succinct and pretty much spot on. the only caveat is that, as has already been stated, in some companies the two bodies (exec and board) are the same people.
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Re: Role of executives and board

Postby stu1985 » Fri Aug 01, 2014 8:49 pm

I had an interesting conversation with a client this week.

The directors of X Ltd are also directors of Y Ltd. Both are part of the same group. The directors of X Ltd solve various IP rights to Y Ltd for no apparent reason. X Ltd didn't have the best balance sheet I have ever seen. The IP rights were its main asset. I asked them why they completed the transaction when X Ltd was in the position it was in. "For the benefit of the group as a whole". They seemed to have forgotten that they owed duties to X Ltd and to Y Ltd quite independently of each other and that they didn't actually owe any duty to the group of companies.

We now find ourselves in a bit of a pickle.
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Re: Role of executives and board

Postby Smouldering Stoat » Fri Aug 01, 2014 10:13 pm

I'm guessing rather, but I'd imagine that was rather common? For many, "the firm" must be thought to be the enterprise as a whole rather than its constituent parts?
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Re: Role of executives and board

Postby dls » Sat Aug 02, 2014 5:18 am

SS is right that this is probably common.
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Re: Role of executives and board

Postby Hairyloon » Sat Aug 02, 2014 8:13 am

dls wrote:SS is right that this is probably common.

So is child abuse. Doesn't make it right.
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Re: Role of executives and board

Postby dls » Sat Aug 02, 2014 8:23 am

Did anyone suggest otherwise?
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