Corporate governance for SMEs – Roles and Responsibilities Part IV

The buck stops with you

World Class Business

January 14, 2020


As the founder and owner of your business, you undoubtedly play many different roles with different hats at any given time of the day (or night). There are four main roles in your business, as a shareholder, director, executive manager, or simply as an employee, and you should be aware of each one as they could have serious implications, especially as a director because the proverbial buck stops with you.

 

Shareholders

 

The shareholder in the company is the apex stakeholder as they hold a lot of rights but none of the liabilities of the other three positions. These rights include the following:

  • Entitled to vote at shareholders meetings. This includes on voting for the board of directors.
  • Entitled to a copy of the company annual financial statements (AFS)
  • Can authorize material acts of the company
  • Can take part in Special vs. Ordinary resolutions
  • Can alter the company’s Memorandum of Incorporation

 

Besides all these, they are also entitled to a share of your company’s profits in the form of dividends.

 

The shareholders provide the capital to the company to execute on the mandate given to the Board to ensure that they receive their required return on their investment. Early stage companies usually generate a higher return on that investment, however, this normally comes with higher risk. Shareholders, as investors tend to take a more active role in the affairs of the business. They can also be co-opted to join the Board to provide their skills, connections and unique insights to the founders.

 

Board of Directors

 

As the CEO, you are probably on your Board of Directors, if you have constituted one, of course. If you have a CFO and COO, they should also be on your Board as these are the three positions in the company that can operate as a shareholder, as an executive director, and manager in the company. These are the main tasks for the Board, amongst a host of others:

  • Manage strategy, risk, performance and sustainability
  • Provide effective leadership based on ethics
  • Authorize resolutions
  • Have certain fiduciary duties as directors
  • Appoints the management team

 

 

Although it sounds rather important to be a director on a Board, there are legal implications involved:

  • Exercise care, skill and diligence
  • Act in the best interest of the company which is not the same as the shareholders
  • Act within powers and for a proper purpose
  • Exercise independent judgement
  • Avoid conflicts of interest
  • Promote corporate opportunity and avoid personal profit

 

Management Team

 

The management team implements the strategy for the company by the Board of Directors to achieve the mandate given to them by the shareholders (Owners) of the business. The functions and responsibilities of the management team are therefore the following:

  • Reports to (and can be replaced by) Board of Directors
  • Execute vision and strategy to achieve goals and objectives
  • Run day to day operations of the company
  • Led by the CEO
  • Plan and direct the work of employees

 

You would have probably recognized yourself playing a part in each of these roles, including that of a normal employee who must do the actual work. Each role has certain responsibilities and liabilities and it advisable to be aware of each and to know which role you are performing at any given stage.

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