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Boards And Directors

 Boards and Directors

Click here to go forward to the Net Asset Value (NAV) section
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Click here to return to Investment Companies – Part Two
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All companies must have a board of directors. The directors are the decision-makers working on behalf of the shareholders who are the owners of the company. Directors have a “fiduciary” duty – a legally enforceable obligation – to look after the interests of shareholders. Directors can get into serious trouble for failing in their responsibilities.

Directors are commonly referred to as being “nonexecutive” or “executive”. Non-executive directors have few, if any, hands-on roles. Their job is to make sure that the people running day to day operations, executive directors and/or managers, do their job properly. Most directors of investment companies are non-executive. Many investment companies do not need executive directors if all the business of the company – investing – is outsourced. The leader is the chairman/chair, who is usually a nonexecutive in all sorts of companies.

The board meets regularly to review how the company is doing. It is responsible for the strategic direction of the company and for thinking about how to handle the risks that the company faces The board members monitor the activities of the executive directors and/or those supplying outsourced services to the company. These will include fund managers, accountants, bankers and brokers. The board has the duty to hire and fire as necessary. The board also presides over the publication of reports to shareholders.

A board may set up subcommittees to handle specific tasks. The audit committee, for example, looks after the company’s accounts and internal financial controls and manages the relationship with external auditors.

New directors are usually selected by the existing directors. They might set up a nominations committee just to carry out this function. However, the ultimate decision rests with shareholders who have to approve all financial, reporting and board appointments.

Shareholders can get in touch with directors at any time. They have a dedicated opportunity to question directors in person at the company’s annual general meeting (AGM). If you can attend the AGM, we suggest you do so. It is a good chance to meet the directors. Usually, the investment manager will also be present and will give a presentation on how the company has been doing.

Anything that needs shareholders’ approval, like the annual report and accounts, has to be voted on at a general meeting of all shareholders. There are rules allowing individuals and groups of shareholders, representing at least 5% of the company or 100 in number, to put forward proposals against anything they don’t agree with, and seek a vote on it. Your vote counts.

Click here to go forward to the Net Asset Value (NAV) section
Click here to go back to the Investment Company Structures section
Click here to return to Investment Companies – Part Two
Click here to return to Investment Companies – Part One

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