Understanding the Different Types of Directors in Malaysia

Understanding the Different Types of Directors in Malaysia

When it comes to the complicated world of corporate governance, the position that directors play is a key factor in helping guide the ship. Malaysia has divided different types of directors that have their own roles in the overall structure as well-established legal grounds under the Companies Act 2016. 

In simple terms, a director is one who carries out the management of the company. According to section 196(1) of the Companies Act 2016 (“the Act”), it is a mandatory provision that every private company must always have at least one director while public company there must be two directors with at least half being ordinary and permanent residents. We need to explore the details of these roles and the tpes of directors in Malaysia.

Executive Director

The Executive Director is the cog in the wheel as far as day-to-day undertakings go and it has been bent towards setting its navigation course full-time. A responsibility charged with overseeing the running of normal activities, these directors provide a practical approach to ensure that company perspectives are met.

Non-Executive Director

On the contrary, a Non-Executive Director would work only on a part-time basis, refraining from active participation in daily operations. Rather, their role is in supervision reviewing the decisions by executive directors and managers for supporting corporate governance.

A non-executive director does not practice work on a full-time basis. They are not involved in the company day to day-to-day operations but their role is rather, to oversee the managers and executive directors.

Nominee Director

A Nominee Director is an employee or representative nominated to a company’s board who acts on behalf of a shareholder, employer or debenture holder. Their key function is to ensure that the interests of the appointing entity are taken into consideration in board discussions and decisions. They go to meetings, participate in strategic issues, and vote on behalf of the appointing organ. But their behavior depends on the directive of the appointing organization, which means following the interests of this organization within corporate governance systems. In contrast,  Nominee Directors operate with a focus on fulfilling fiduciary duties to the appointing entity rather than relying on personal discretion.

De Facto Director

De facto Director can refer to a person who fulfills duties and functions of a director without regard to the lawful of their appointment. Such a situation occurs when one behaves as a director, showing leadership aptitudes and decision skills even without an official or legal titling. Indeed, a De Facto Director enjoys directorial prerogatives and duties without being appointed or authorised as such. They could also engage in such activities as making executive decisions, influencing corporate strategies and involving themselves with board related activities which depicts the de facto leadership within the organization. However, certain circumstances may make it possible to assume the directorship de facto without any formal appointment which implies a practical realization of leadership.

Shadow Director

A shadow director is one who gives directions or instructions to the directors of a corporation, and whose instructions are generally followed. This indicates that, even though the person has not been made a director, he still controls the board of directors’ proceedings. Most of the directors follow his direction or instruction as a common practice.

The Shadow Director is powerful despite not having a formal title, for most board members are under his influence in any company. However, this strong character may have the ability to influence critical decisions only without an actual position of a director. A characteristic feature of the Shadow Director is that its guidance and instructions are always followed by directors, leading to an atmosphere in which most board members habitually follow it. Essentially, a Shadow Director works in the shadows operating heavy influence on the strategic steering and decision-making process of the company. However, this role of influence is not expressed through any official position but through its practical imprint on the board’s decisions and actions.

Alternate or Substitute Director

A substitute or alternate director is an individual appointed by another person from among his directors to attend meetings or perform duties on his behalf. An alternate or substitute director can be nominated by a valid nomination in a company’s constitution.

The main objective of the appointing an alternate or substitute director is to facilitate continuity in decision-making as well as representation especially if the original director cannot attend meeting and could also fail some of his/her duties. The powers and duties that are allowed to an alternative director depend on the provisions enshrined in a company’s constitution.

Such an arrangement gives directors the freedom to undertake temporary delegation of their roles without damaging how board operates. However, it should be emphasized that the option to appoint an alternate or substitute director should conform with the terms of a company’s governing documents in order to provide for fairness and compliance with procedures that are in place. The job of substitute director will end as soon as the original director takes up their duties.

After knowing the various director roles in Malaysia, evaluate your capabilities. When you require a director located in Malaysia, FastLane Group is the leading company secretary service provider to offer nominee director services. Allow regulatory compliance and streamlined corporate governance with FastLane. Investigate tailor-made approaches to a strong corporate structure.

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