A Complete Guide to Appointing a Director
8 Types of Organisational Culture for Businesses in 2022
March 24, 2022
Examining the Benefits of Hybrid Working in the Modern Workplace
May 18, 2022When it comes to appointing a director, it is a complex process. Not only do you need to find the right person, who is the best fit for the job, but you also need to go through the hoops of legally appointing a director, and knowing it’s very different from your average appointment process.
Your first steps with appointing a new director
Before you even consider appointing a director, you need to first be sure of whom you want on board, quite literally. This person will be sitting on the board, making decisions about the direction and actions of the company.
As such, it’s important to consider what is needed in a director, such as integrity, business acumen and financial awareness, as well as the particular requirements for that role. A director is typically recruited for their exceptionally high-level skills and experience in a certain area, for example sales, operations or technology, but they also need wider business skills too.
At this stage it can be very helpful to use talented and experienced headhunters, like Eagle, to sit with the board and discuss the intricacies of the role. This will help you uncover what is really needed and the possibilities for determining the future success of the business.
The recruitment process for a new director
With a clear idea of the requirements of the role, you can move forward with appointing a director. Your next step is to find the candidate. Your headhunter again becomes invaluable as they carefully work in the industry to identify and entice candidates that fit the requirements. These candidates are typically demonstrating their value in another role, so it is a complex process. The headhunter will be able to look at the track record and match it to your requirements.
Also as part of this process, the headhunter will ascertain if the candidate is eligible to be appointed as a director or non-executive director. The eligibility criteria for a director include:
- Being at least 16 years old.
- Not being currently disqualified from being a director.
- Not being an undischarged bankrupt.
Not currently auditing the company, or will be in the future.
Different types of director
There are different types of director that the board may want to appoint. Directors carry specific responsibilities for determining the success of the business. In addition, they are directly responsible for ensuring the business operates legally. Together, the board of directors undertakes decision-making for the company.
The two types of director that you might seek to appoint are executive directors and non-executive directors.
Executive directors
Executive directors carry out a lot of the day-to-day activities of the business at a strategic level, including recruitment, people management, contractual obligations and management and asset management. They may hire managers to carry out many of these functions, but fundamentally, the buck stops with the executive director. They are employed, much like any other employee, and are therefore just as much protected by employment law. They are paid as other employees are and pay tax through Pay As You Earn (PAYE). They are highly involved in every aspect of the business.
Non-executive directors
Appointing non-executive directors is different. Non-executive directors also sit on the board and go to all relevant meetings. They also hold a vote on key decisions. However, they aren’t part of the everyday running of the business. They tend to have a specialist role or insight, and they dip in to offer their skills as needed, or for particular activities or projects.
Non-executive directors can be employees, or they may be self-employed, contracting themselves to the business for specific services. They are rarely full-time. Non-executive directors can therefore hold this role for more than one business.
The idea is that by appointing a non-executive director you get a strategic and objective view of the business from someone less closely involved. They are valued for creating effective boards with excellent connections.
Like executive directors, they also have duties in law to the company.
Power of directors
Both executive and non-executive directors have specific powers that make them distinct from the average employee. They are responsible for making business decisions, unless the law, or the company’s own articles, stop them from going so. Directors have an obligation to carry out the duties which are set out in the Companies Act 2006.
The board gains its power with prior authority from shareholders. Once the shareholders have passed over a power, it then belongs to the board and is then in their control. The board must, generally, act collectively, but they may delegate if this is stipulated in the company articles. If the shareholders are unhappy with how the directors are acting then their only option is to change them.
The make-up of a company board
There will be similarities between different companies, but the board of directors needs to be chosen to meet the needs and objectives of the individual company. The Companies Act 2006 establishes certain requirements that determine how many directors there must be. Then, the company’s articles of association set out the number of directors that the specific company can appoint.
The process for appointing a director
The company’s articles of association will set out the process for appointing a director. There are usually common elements. For example, it is usual that all new director appointments must be approved by the current board members. In some cases it is also possible to appoint a new director by passing an ordinary resolution of the members of the company. In the event that the articles of association don’t specify how to appoint a director, the members of the company have inherent powers to do so, using an ordinary resolution. In rare situations, the court may appoint a company director, for example if there has been an unfair prejudice claim.
Once the existing directors or members have decided to make the appointment, it’s then a legal requirement for the new potential director to give their express consent to the process of being appointed as a director. This is done by completing the relevant paperwork with the Register of Companies.
Companies House must then be notified of the appointment within 14 days of the appointment being effective. This can be done online and follows a set process. The Company Secretary carries responsibility for ensuring that Companies House is notified and that they complete the needed entries to the company’s statutory registers.
Ending the role of the company director
There are a range of reasons why someone may cease to be a company director and seek to discharge their responsibilities. The most common is, of course, straightforward resignation. The articles of association should also include directions for how resignations can take place. Typically, it is possible for a director to resign from the role at any time by giving appropriate notice in writing to the company at its registered office. It’s more complex to remove a director involuntarily, but it is possible through an ordinary resolution.
Again, it is then the responsibility of the remaining directors or Company Secretary to notify Companies House of the change within 14 days and again complete the entries in the company’s statutory registers.
The right person is crucial
The actual process of appointing a director or appointing a non-executive director is largely governed by existing rules and processes. However, never overlook the importance of finding and recruiting the right candidate for these unique roles. It’s vital to identify directors with the right mix of technical skills and business acumen, along with a commitment to the specific company and its objectives.
At Eagle Headhunters we are experienced in supporting businesses find their next director and helping to develop their board. Get in touch.