Generally, company law statutes do not usually contain elaborate provisions on types of directors. This is the case also with the Companies and Allied Matters Act, Cap. C20, Laws of the Federation of Nigeria 2004 (CAMA). Interestingly also, the Companies Act 2006 of the United Kingdom, in spite of its mammoth 1,300 sections spanning over 700 pages, has no provisions on types of directors even though it has elaborate provisions on other issues concerning directors: appointment, qualification, removal, duties, liabilities, etc. This article considers the different types of directors that are commonly available in spite of the absence of specific statutory provisions in that regard. There are four different perspectives we shall adopt in this review to ensure that the subject is adequately covered.
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There are four types of directors recognised or identified in the CAMA. While the first three (executive, non-executive and life directors) were identified by name, but without any definition of their meaning, the fourth type (shadow director) was mentioned by name in the marginal note of the relevant section which provided for it.
In the first case, in section 244(2) it is provided that in favour of any person dealing with a company there is a rebuttable presumption that all persons who are described by the company as directors, whether as executive or otherwise, have been duly appointed. Secondly, in section 282(4) it is provided that the same standard of care in relation to the director’s duties to the company shall be required for both executive and non-executive directors provided, however, that additional liability and benefit may arise under the master and servant law in the case of an executive director if there is an express or implied contract to that effect. Thirdly, section 255 recognises life director. It permits of a person being appointed a life director of a company subject to the powers of removal of directors as stipulated in section 262. Fourthly, section 245 has an extensive provision regarding shadow directors. We have discussed shadow director extensively in a previous article [see here].
Thus, it may be argued that statutorily there are four recognised categories of directors recognised by the CAMA. These are executive directors, non-executive directors, life directors and shadow directors. We shall discuss the differences in the first two categories in detail later.
Apart from the CAMA, there are some regulatory instruments which have provisions regarding categories of directors in Nigeria. Typical examples of such instruments are the different codes of corporate governance in force in Nigeria. For instance, the Code of Corporate Governance in Nigeria 2011 (2011 SEC Code) recognises the two broad categories of directors: executive directors and non-executive directors. Accordingly, in section 4.3 of the 2011 SEC Code, it is provided that boards should comprise a mix of executive and non-executive directors. There are numerous provisions in the 2011 SEC Code on these categories of directors (for example, section 5.3 on executive directors and section 5.4 on non-executive directors). There is a third type of directors recognised by the 2011 SEC Code even though it is a flavour of non-executive directors: the independent directors (section 5.5). For further discussions on independent directors, see here, here, here and here.
The other codes of corporate governance also have provisions on these three types of directors, but their provisions are not as extensive as those of the 2011 SEC Code.
The courts are not left out in the attempt at establishing the types of directors. In the case of Re Hydrodam (Corby) Limited  2 BCLC 180, Millet, J. opined: “Directors may be of three kinds: de jure directors, that is to say, those who have been validly appointed to the office; de facto directors, that is to say, directors who assume to act as directors without having been appointed validly or at all; and shadow directors who are persons falling within the definition which I have read.”
Further in the judgment, it was observed thus: “A de facto director is a person who assumes to act as a director. He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such. To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director. It is not sufficient to show that he was concerned in the management of the company’s affairs or undertook tasks in relation to its business which can properly be performed by a manager below board level.”
And finally thus: “A de facto director, I repeat, is one who claims to act and purports to act as a director, although not validly appointed as such. A shadow director, by contrast, does not claim or purport to act as a director. On the contrary, he claims not to be a director. He lurks in the shadows, sheltering behind others who, he claims, are the only directors of the company to the exclusion of himself. He is not held out as a director by the company. To establish that a defendant is a shadow director of a company it is necessary to allege and prove: (1) who are the directors of the company, whether de facto or de jure; (2) that the defendant directed those directors how to act in relation to the company or that he was one of the persons who did so; (3) that those directors acted in accordance with such directions; and (4) that they were accustomed so to act. What is needed is, first, a board of directors claiming and purporting to act as such; and, secondly, a pattern of behaviour in which the board did not exercise any discretion or judgment of its own, but acted in accordance with the directions of others.”
Thus from that judicial perspective, three types of directors are identified, but the nature of the different types of directors is different from those of the statutory and regulatory perspectives we considered earlier.
In popular sense, there are six types of directors. These are executive directors, non-executive directors, independent directors [see here, here, here, and here], shadow directors [see here], alternate directors [see here] and life directors. It is appropriate at this point to point out the major differences between an executive director and non-executive director. An executive director is that director of a company who in addition to being a director of a company is also an employee of the company. Thus, apart from his directorship, he has a contract of employment with the company with terms and conditions which are not of general application to all other directors of the company. He is involved in the day-to-day running of the company and is otherwise known as an inside director. On the other hand, a non-executive director is that director of a company who is not involved in the day-to-day running of the company. He has no contract of employment with the company other than that by which he is appointed as a director. He is otherwise known as an outside director.
It is worthy of mention that there are some officers of the board who may be confused as being different types of directors. These are the chairman and the managing director. It is contended that these are not types of directors, but officers of the board. This contention is predicated on the inescapable fact that to be eligible to be appointed as either the chairman of the board or the managing director of the company, the person must first and foremost be appointed as a director. On the flip side, the fact that one has been removed as a chairman or a managing director does not ipso facto terminate the person’s membership of the board, without more. This is the crux of the matter in the decision of the Supreme Court in the Nigerian case of Bernard Longe v First Bank of Nigeria Plc (2010) 6 NWLR (Pt. 1189) 1 S.C.
Next week, we shall discuss another aspect of company directors. Meanwhile, should you have any comments on the issues raised in this article, kindly share them using the comments area of this post below. If you are already a registered user, you will be required to log in to comment on this post; otherwise, you will have to register before posting your comment. Registration is simple and FREE.