A nominee director is appointed to a board by another person or entity to act on their behalf.
Did you know there are instances when a board director needs someone to step in and serve on his or her behalf?
For instance, when a company goes through a transition period, such as a merger or acquisition, or when facing financial difficulties or major legal disputes, a board member may nominate someone else to take their place, referred to as a nominee director
In this blog post, we’ll explain what a nominee director is, the roles and responsibilities of a nominee director, and the risks and liabilities associated with the role. We’ll also look at how board management software helps organizations improve effectiveness.
What is a Nominee Director?
A nominee director is a person who is appointed to a board of directors by another person or entity to act on their behalf. The nominee director may be knowledgeable about the company’s affairs and can provide advice and guidance to the board, or they may be appointed to represent the interests of the person or entity that nominated them, referred to as a nominator.
Typically, a nominator is a business owner or shareholder with a significant stake in the company. Investors, banks, and lending companies can also appoint a shadow director to represent their interests in a company.
The main purpose of having a nominee director is to give the appointing person or organization some level of control over the company, without having to serve as shareholders or directors themselves.
Roles and Responsibilities of a Nominee Director
If you’re thinking about appointing a nominee director or preparing to assume the role yourself, make sure to consider these key duties.
Attend Board Meetings
A shareholder or stakeholder may appoint a nominee if circumstances prevent them from actively engaging in the day-to-day running of the company. This may be because they live in another country or have other commitments that prevent them from being able to attend board meetings. As such, the nominee director must attend board meetings and provide input on various company matters on behalf of their nominators.
Fulfill the Wishes of the Nominator
Another key role of a nominator is to act on the nominator’s behalf. Unlike independent directors, nominee directors cannot make any decisions independently but should ensure the company is run in a way that is consistent with the nominator’s wishes.
This brings us to the question — what is an independent director? This is a member of a board of directors who is not an employee of the company and doesn’t have a material relationship with the company. Independent directors are typically chosen for their expertise, experience, and judgment and expected to provide objective oversight of the company.
Influence the Company’s Decisions
Nominee directors don’t hold executive powers, so they’re not responsible for the day-to-day running of the business. Nevertheless, they should understand their duty of care.
What is duty of care? Duty of care requires nominee directors to act in good faith and make informed decisions in service of their organizations.
After the meeting, the company secretary should use a Board of Directors’ Resolution Template to record the crucial decisions and actions made during the board meeting. It not only ensures transparency and accountability, but also provides a record directors can refer to in the future or for legal purposes.
Protect the Nominator’s Interests
Another important role of a nominee director is to act in the best interests of the person or entity who appointed them, and to carry out the wishes of the person or entity to the best of their abilities. For instance, they can be a valuable asset to investors, as they can help to protect their investments.
If the board makes a decision that isn’t in the best interests of the nominator, the nominee director can vote against it. This protects the nominator’s interests and ensures their voices are heard.
Ensure the Company is Run in a Certain Way
By appointing a nominee director, shareholders and investors can have a direct say in the management of the company, which can help to protect their investment.
Business owners and stakeholders can also appoint nominee directors to counsel or resolve disputes between shareholders. By appointing a neutral third party to act as a nominee director, shareholders can have confidence the executive directors will run the company in an unbiased manner.
Risks and Liabilities
It’s important for business owners, investors, shareholders, and stakeholders to weigh the risks and liabilities of inside vs. outside directors. When it comes to nominee directors, there are a few risks and liabilities they should know.
First and foremost, a nominee director is not an employee of the company. This means they’re not bound by the same employment contracts and obligations as employees.
For instance, nominee directors may not be able to commit the same amount of time to the company as the other directors. This can lead to a number of problems, including a lack of accountability and transparency.
Nominee directors also may not have the same level of experience or expertise as the company’s employees. This can lead to them make decisions that aren’t in the best interests of the company.
Finally, nominee directors may be tempted to use their position for personal gain. This could lead to them making decisions that aren’t in the company’s interests as well as the other directors.
Unlock Complete Board Effectiveness
Board management software is a valuable tool that many boards use to work more effectively and efficiently.
If you’re looking for software to streamline governance and help your entire board—including nominee directors—work smarter and improve overall effectiveness, check out OnBoard’s Board Management Software.
OnBoard comes equipped with the following features, among others:
- Industry-leading security, compliance, and data protection that’s certified and accredited
- Agenda Builder and Minutes Builder for simplified meeting administration
- Secure Messenger and Zoom Integration to enhance communication
- Board Assessments to empower boards to measure their performance against the organization’s goals.
Ready to empower your board with the tools they need to succeed?
Check out our Board Management Software Buyer’s Guide for information on selecting a board management vendor that will make your board happy and keep meetings focused on strategy.
About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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