Value of having a board of directors





A company is a separate legal entity from its members who constitute it. It can hold, purchase and sell properties and enter into contracts in its own name. It is an artificial legal person who can sue and be sued.

A company is a third legal business structure and has entirely a different organisational structure from the sole proprietorship or partnership.

There are two common types of companies namely public limited which collects its capital by the sale of its shares to the general public and a Private limited whereby the transfer of shares is limited to its members.

For the past decades global economies have experienced the development of numerous companies around the world. Companies facilitate economic growth of a nation and are of great importance to the government hence most companies share a set of goals namely profit maximisation, growth and expansion.

It is only evident that the success of companies creates a great centre of attention for its owners and partners hence much investment is required to ascertain a leading team that fuels the success of a company. A company being an artificial person cannot run itself hence it requires agents who serve as leaders and managers on behalf of it.

Companies are owned by shareholders and they elect the board of directors, who run the company. Company directors are the people responsible for the day to day running of a Limited company but do not own the company whilst a board of directors is an elected group of individuals that represent shareholders.

In Zimbabwe Section 2 of the Companies Act 2012 defines a director as any person occupying the position of director by whatever name called and shall include a shadow director.

Therefore, under the law, a director is defined by what they do rather than the actual job title. Even a person not formally appointed by the shareholders might be deemed a director if their role could be deemed equivalent to a director.

The board is a governing body that typically meets at regular intervals to set corporate management and oversight policies.

In Zimbabwe according to the Companies Act every limited company is expected to have a set of board of directors. Directors exist in two forms namely executive and non- executive directors.

All the companies are managed and run by the company’s top executives, the board of directors whose economies have experienced the development of numerous companies around the world.

Companies facilitate economic growth of a nation and are of great importance to the government hence most companies share a set of goals namely profit maximisation, growth and expansion.

It is only evident that the success of companies creates a great centre of attention for its owners and partners hence much investment is required to ascertain a leading team that fuels the success of a company.

A company being an artificial person cannot run itself hence it requires agents who serve as leaders and managers on behalf of it.

Companies are owned by shareholders and they elect the board of directors, who run the company. Company directors are the people responsible for the day to day running of a Limited company but do not own the company whilst a board of directors is an elected group of individuals that represent shareholders.

In Zimbabwe Section 2 of the Companies Act 2012 defines a director as any person occupying the position of director by whatever name called and shall include a shadow director.

Therefore, under the law, a director is defined by what they do rather than the actual job title. Even a person not formally appointed by the shareholders might be deemed a director if their role could be deemed equivalent to a director. The board is a governing body that typically meets at regular intervals to set corporate management and oversight policies.

In Zimbabwe according to the Companies Act every limited company is expected to have a set of board of directors. Directors exist in two forms namely executive and non- executive directors.

All the companies are managed and run by the company’s top executives, the board of directors who are appointed by the shareholders at the general meeting to handle the affairs of the company on their behalf.

The composition of the company’s board of directors includes both executive and non-executive directors.

Executive directors are the working directors, hired by the company, for salary and who holds a position in the company’s board.

And so, they are the employee of the company and the member of the board as well who represent internal directors whilst non-executive directors popularly known as NEDs are not part of the managing team and employees of a company but plays a crucial role in the formulation of policies and plans, and decision making of the company and represents external directors.

The 1992 Cadbury Report initiated a debate on why a board of directors should have two thirds of its board as NEDs because the prior reason for appointing a non-executive director to the company’s board is their independence from the company’s management and other stakeholders.

Hence, they bring objectivity, unbiasedness, calibre and other qualities to the board.

Up to date countries such as the UK have adopted this predicament.

A balanced board of directors should have both sets of non- executive and executive directors such as the UK Corporate Governance Code, which states that  the board should include an appropriate combination of executive and non-executive and  in particular, independent non-executive directors, such that no one individual or small group of individuals dominates the board’s decision-making.

The structuring of a board of directors tends to be more varied outside of the United States. In certain countries in Asia and the European Union, the structure is often split into two primary boards – executive and supervisory.

The executive board is made up of company insiders that are elected by employees and shareholders.

In most cases, the executive board is headed up by the company CEO or a managing officer. The board is typically tasked with overseeing the daily business operations.

The supervisory board concerns itself with a broader spectrum of issues when dealing with the company, and acts much like a typical US board.

The chair for the board varies but is always headed up by someone other than the pre-eminent executive officer and this is known as a two- tier structure.

The unitary board model is adopted by, inter alia, companies in the UK, US, Australia and South Africa. The company’s directors serve together on one board comprising both executive and non-executive directors.

While much of the comment and discussion on a board of directors focuses on their importance in the running of a company much is to be discussed about their expected duties as well. The relation between a board of directors and the company they serve is of a principal- agent relationship hence a board of directors occupies fiduciary duties aspect.

The definition of fiduciary duty is an obligation to act in the best interest of another party which is strictly codified in Section 198 of the Companies Act 2012 of Zimbabwe. In a foreshadowing of the Act, the board of directors should always prefer the long-term consequences for the company over the short-term benefit for shareholders.

 To be continued

Dr Keen Mhlanga is the executive chairman of FinKing Financial Advisory. He can be contacted on [email protected] or +263719516766. This was first published by the Herald.