A shadow director takes on the duties of a director but isn't officially appointed to the board.
When you’re a director of a company or nonprofit, you often make critical decisions for your organization. From approving expenditures to overseeing audits and employee performance reviews, you’ll have a lot on your plate.
So what happens when you’re not around? When you’re out of town and unable to attend a meeting, who’s going to make those decisions for you? That’s where a shadow director comes in.
A shadow director is someone who sits on the board and acts as an extension of your will. While they’re recognized by law as any other director, they don’t have the power or influence that comes with being an executive director.
However, like other types of directors, such as inside and outside directors, shadow directors have different responsibilities depending on the company they serve.
Today, we’ll take a closer look at shadow directors, their roles and responsibilities, and the liabilities associated with the role. Read on to determine if a shadow director is right for your organization.
What is a Shadow Director?
A shadow director is a person who takes on the duties of a director but isn’t officially listed or appointed to the board. In other words, a shadow director acts as an alternate for a standard director. They’re responsible for filling in when the actual director cannot fulfill their duties.
Board directors assume a lot of responsibilities, so it’s important to have someone to stand in when they’re absent or unavailable.
Shadow directors usually hold similar responsibilities as regular directors; however, they’re not allowed to make decisions on behalf of the company unless they’ve been delegated power by another staff member (usually an executive).
Read also: What is an Independent Director?
Roles and Responsibilities of a Shadow Director
Shadow directors are individuals who contribute to the management of limited companies without being formally appointed to their board. As such, they have an important role in ensuring the company is run legally, ethically, and efficiently.
As a shadow director, your job will be to monitor and supervise all aspects of the business, so that it’s run effectively and efficiently. For example, to ensure accountability, you can use a board of directors’ resolution template to record all the decisions made in your board meetings.
A shadow director’s main responsibilities are to guide management, ensure the company follows applicable laws, and manage the company’s business activities. Shadow directors assume many responsibilities depending on their particular situation, including:
- Reviewing financial statements and making recommendations
- Communicating with the board and other members of the management
- Attending and participating in board meetings
- Approving regular expenditures
- Obtaining finances or borrowing on behalf of the organization
- Acting as an ambassador for the company at networking events and conferences
- Giving advice on company strategy
- Representing the company in meetings with suppliers, partners, and other business associates
- Overseeing company audits and staff performance reviews
In short, a shadow director’s responsibilities are similar to those of formally appointed directors.
Risks and Liabilities
Shadow directors are often asked to take on directors’ duties and responsibilities. They fulfill these roles in their own capacities rather than as officially appointed directors of the company. For that reason, shadow directors may not be subject to the same risks and liabilities associated with company directors. However, there are some risks that shadow directors should consider.
For instance, shadow directors can be held liable for any debts or damages incurred by their companies if they fail to demonstrate due care or take reasonable care in carrying out their duties. This means a lack of formal appointment doesn’t necessarily prevent potential liabilities.
In some cases, shadow directors may be held liable for losses incurred by the company due to negligence or misconduct on their part. Shadow directors can also face a personal liability if they fail to carry out their duties in accordance with company policy or act in the best interest of the company’s shareholders.
Also, if the company becomes insolvent, a shadow director can be held liable by the company’s creditors.
Related article: What is Duty of Care?
Getting Started With OnBoard
Shadow directors must ensure they carry out all their board duties in accordance with the law and company policies, particularly when it comes to reporting requirements.
If you’re looking for software to streamline governance and help your entire board—including shadow directors— work smarter and improve overall effectiveness—check out OnBoard’s Board Management Software.
OnBoard easily enables you to:
- Access and manage all meeting documents in a central hub
- Set and receive reminders for upcoming meetings
- Provide feedback and vote on initiatives in real time
- Keep track of meeting minutes with ease and accuracy
- Collaborate with other directors before and after meetings
- Access board materials from the cloud
Ready to learn how OnBoard improves board governance and management processes?
Reach out for a free trial today. We also recommend downloading our free Board Management Software Buyer’s Guide for detailed descriptions of the features and benefits you should seek out.
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About The Author
- Josh Palmer serves as OnBoard's Head of Content. An experienced content creator, his previous roles have spanned numerous industries including B2C and B2B home improvement, healthcare, and software-as-a-service (SaaS). An Indianapolis native and graduate of Indiana University, Palmer currently resides in Fishers, Ind.
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