No matter how small a company it is important to have a very clear distinction between the different roles and responsibilities of the various groups involved in a company i.e. shareholders directors and the management team.
Even though there will be instances where the same people will have responsibilities in each group, if there is not a clear understanding of the “role” that is being performed at a particular time, great confusion can arise.
The Shareholders – Their role is to provide the company with sufficient share capital to enable it to achieve its stated mission and financial objectives. As a group this may include, yourself, some of the management team and outside investors. Shareholders require a level of return on their initial investment in terms of capital growth and dividend return in accordance with their specific investment criteria.
The Board of Directors – The board of directors have clearly defined responsibilities with respect to the shareholders, the company and its employees, such responsibilities being:
- To develop, and continually refine, a business strategy that will enable the mission of the company to be achieved.
- To define, develop, and monitor specific financial and performance objectives associated with the business strategy.
- To ensure that the company has sufficient financial resources to call upon to meet the objectives.
- To ensure that the company has sufficient management and human resources in place to achieve the objectives.
- To continually monitor company performance against objectives and revise strategy where appropriate.
- To communicate regularly to all shareholders, banks and other stakeholders, including employers, on company performance.
- To ensure that all corporate governance responsibilities of the company are carried out.
It is very beneficial to have the Chief Executive or Managing Director reporting the work of his team to a person who can question and challenge the management team, which is where the role of the non-executive director can be very beneficial. A correctly constituted company will be more attractive to an outside buyer.