External directors provide unbiased management and oversight assistance to companies, with a fiduciary duty to protect shareholders’ interests. They are appointed to offset the influence of internal directors and contribute to the corporation in various ways beyond their legal obligations.
An external director provides management and oversight assistance to companies. As a member of the board of directors, a person accepting this position has a fiduciary duty to protect the interests of shareholders. His designation as an outside director indicates that he was never an employee or major shareholder of the corporation, unlike others who sit on the board as inside directors. As an outsider, this director is expected to bring an unbiased perspective to the board’s decision-making process.
The board of directors is a group of people charged primarily with the responsibility of ensuring that a company operates in the best interests of shareholders rather than for the personal enrichment of management. A corporation is owned by the people who own shares of its stock, not by the company’s officers or managers. Shareholders may be located anywhere in the world and do not necessarily have the ability or right to interfere in the day-to-day management of the business to ensure that their investment is properly handled.
The law allows the board of directors to act as a proxy for all shareholders who invest in the company. Directors may be appointed to the board from within or outside the corporation. Inside directors are usually founders or individuals who own large blocks of stock in the corporation and also work for the company as a chief executive. Outside directors are added to the board to offset the influence of internal directors, adding unbiased perspectives. Board directors must meet a certain number of times per year, as indicated by the corporation’s bylaws and current needs.
All members of the board of directors, including outside directors, have certain obligations prescribed by law and serve to protect the interests of the public. These functions include providing financial oversight to ensure the company is not mishandled, managing the personnel and conduct of key executive positions, and providing strategic management of company-wide affairs. In addition to those duties that fulfill a director’s fiduciary duty, as required by law, an outside director is expected to contribute to the corporation in a variety of other ways.
When an outside director is invited to serve on a board, he is expected to make his knowledge, credentials, influence and resources available for the benefit of the corporation. These contributions can manifest themselves in many different ways, from influencing an important regulatory file on behalf of the corporation to using media contacts to generate positive press. He may be asked to take on additional responsibilities, such as serving as chairman of the board or acting as a spokesperson for the company. Generally, in addition to the ordinary duties required by law, an outside director may be invited to serve on project-based committees or perform any task that benefits the corporation as a whole.
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