Independent Directors: Brief analysis
Why should I appoint Directors?
If we take the example of a very common corporate form, the 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 can 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 for them by law or the company’s articles of association. Such matters include, among others, the appointment and dismissal of the Directors, the approval of accounts, the granting of discharge, the appointment of the auditor, the amendment of the company’s articles of association as well as decisions regarding capital increases or decreases, mergers, divisions or the company’s liquidation.
The Board of Directors and Supervisory Board is the main organ responsible for shaping the company’s strategy.
The primary responsibilities of Directors are as follows :
to manage the company with a level of diligence and prudence (“en bon père de famille”) with a best efforts approach and without any obligation to meet 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 regards to liability, the members of the management body can be held accountable for their actions in the following ways :
towards the company if they commit an error that damages it;
towards the company or third parties if their conduct is in breach of the applicable law and/or the articles of association. In this case, shareholders may individually act against the Directors or members of the management committee if they prove that they were independently prejudiced;
Is the Director required to be independent?
According to the 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.”
Whilst 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 (“iNEDs”) – a NED who is also considered Independent
It is for the Board to adopt the appropriate criteria for the assessment of the independence of its Directors.
However some criteria have been established by the market. Indeed, 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 “Consideration also has to be given to personal relationships, […] it is very relevant in a country such 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 values to a Luxembourg structure, particularly in regulated and investment-oriented entities such as funds, SPVs, and corporates.
Among those, the main ones are:
objectivity,
enhanced governance,
Luxembourg regulation compliance,
conflict of interest mitigation,
sharing of expertise, industry knowledge and best practices and
networks.
Independent Non-Executive Directors bring significant added-values to a Luxembourg structure, particularly in regulated and investment-oriented entities such as funds, SPVs, and corporates. Among those, the main ones are objectivity, enhanced governance, Luxembourg regulation compliance, conflict of interest mitigation and 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 experience 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.
Choosing Osmia means embracing independence, integrity, and impact.