Are You Really a Director or a Department Head?

Director of Construction, Director of Sales & Marketing, Marketing Director, Quality Director, and many, many more titles use the word ‘Director’. What does it mean?

For most people it means the person with the title is in charge; of that function certainly and we might assume of the company. This is where it gets tricky for anyone with that title.

A director of a company, registered at Companies House, has specific duties under statute. They represent the company, a separate legal entity, within powers conferred to them by the Memorandum & Articles and policies set by the Board of the company. The law specifies how they must behave as a director. 9 out of 10 directors do not know their statutory duties clearly.

If a Director makes a representation on behalf of a company and someone outside the company relies upon their belief that this person, titled as director, is a bona fide director of the company and incurs costs or losses as a result, the ‘director’ may be liable for the situation; to the third party, to the company and shareholders.

So, if someone says “have you the authority to decide this?” do not let your ego get in the way. Clarify what they are asking. Make sure they know the company will decide on any commitments or the extent of your authority before continuing.

That’s why it usually says “Authorised Signatory” on forms making a legal commitment. If you have the title but not the authority, do not sign it.

It’s particularly important with suppliers. Buried deep in the T&Cs is often a personal guarantee that the signatory is responsible for completing the contract. If you are going to sign stuff, make sure you have clear powers from the company and an indemnity from the company that supports you if stuff goes wrong.

‘Oh – it’ll never happen’ has come back to bite people too often. When I am assisting in a pre-insolvency situation, I see people who had never considered the issues reeling as the consequences hit home.

Be clear on your role, your authority, and seek assurance from your employer that you are acting with their authority. Be safe.

When I advise companies, I suggest they avoid the unnecessary use of the ‘director’ title. One went as far as to call their senior executives “Head of Stuff” and another “Head of the Other Stuff”. It worked for them.