Why should I appoint Directors?
If we take the example of a very common corporate form, the public limited company, having a Board of Directors is a legal requirement. The Law of 10 August 1915 on Commercial Companies states that companies in Luxembourg can be structured as single-tier entities or as two-tier entities. In the first case, the company must have a Board of Directors with at least three members. The Board of Directors may delegate certain responsibilities to a Management Board. Two-tier structures have, in addition to the Executive Board (Directoire), a Supervisory Board.
What are the responsibilities of a Director?
In Luxembourg, the Board of Directors of a public limited company (Société Anonyme), for example, is primarily responsible for the corporate governance of the company. However, shareholders may also have the power to resolve certain matters that are reserved to them by law or by the company’s articles of association. These matters include, among others, the appointment and dismissal of Directors, the approval of accounts, the granting of discharge, the appointment of the auditor, amendments to the company’s articles of association, as well as decisions regarding capital increases or decreases, mergers, divisions, or the liquidation of the company.
The Board of Directors and the Supervisory Board are the main bodies responsible for shaping the company’s strategy.
The primary responsibilities of Directors are as follows:
- to manage the company with diligence and prudence (“en bon père de famille”), using a best-efforts approach and without any obligation to achieve a specific outcome;
- to ensure that the interests of the company prevail over their personal interests, and to avoid any conflicts of interest;
- to ensure that they have and maintain the necessary skills, qualities, and time capacity to fulfil their duties, and to avoid disclosing any confidential information.
What are the liabilities of a Director?
With regard to liability, members of the management body may be held accountable for their actions in the following ways:
- towards the company, if they commit an error that causes damage to it;
- towards the company or third parties, if their conduct breaches applicable law and/or the articles of association. In such cases, shareholders may individually act against the Directors or members of the management committee if they can prove that they suffered separate harm.
Is the Director required to be independent?
According to ALFI’s Code of Conduct for Luxembourg Investment Funds:
“The Board should have good professional standing and appropriate experience and ensure that it is collectively competent to fulfil its responsibilities.”
“Consideration should be given to the inclusion in the Board of one or more members that are, in the opinion of the Board, independent.”
While Luxembourg company law makes no distinction between types of Directors (and therefore all Directors have the same duties and responsibilities), corporate governance practice tends to divide Directors into different groups, usually as follows:
- Director – any member of a Board of Directors of a company
- Executive Director – a Director who is also an employee of the company (and, in the context of funds, usually taken to include any persons employed within the promoter group)
- Non-Executive Director (NED) – a Director who is not an Executive Director
- Independent Non-Executive Director (iNED) – a NED who is also considered independent
It is for the Board to adopt the appropriate criteria for assessing the independence of its Directors. However, some criteria have been established by the market. Such criteria are set out in more detail in Appendix D of the X Principles of the Luxembourg Stock Exchange.
Additionally, ILA specifies that “Conflicts of interest may arise from many different situations and relationships, including, for example economic interests, relationships or prior employment,” but that “consideration also has to be given to personal relationships, […] it is very relevant in a country such as Luxembourg, given the proximity of families, business partners and service providers.”
What is the added value of the Independent Director?
Independent Non-Executive Directors bring significant added value to a Luxembourg structure, particularly in regulated and investment-oriented entities such as funds, SPVs, and corporates.
Among the main benefits are:
- objectivity,
- enhanced governance,
- compliance with Luxembourg regulations,
- mitigation of conflicts of interest,
- the sharing of expertise, industry knowledge, and best practices, and
- access to networks.
Independent Non-Executive Directors bring significant added value to a Luxembourg structure, particularly in regulated and investment-oriented entities such as funds, SPVs, and corporates. Their key contributions include objectivity, enhanced governance, compliance with Luxembourg regulations, mitigation of conflicts of interest, and the sharing of expertise, industry knowledge, best practices, and networks.
How can Osmia Consulting help you?
With proven expertise in governance and regulatory matters, Osmia Consulting provides experienced and truly independent Directors for funds, SPVs, and corporates. Our profiles combine strong industry knowledge, objectivity, and hands-on experience to bring real value to your Board.