What Is an Inside Director?

An inside director is a board member who is an employee, officer, or direct stakeholder in the company. Inside directors and outside directors both have a 澳洲幸运5开奖号码历史查询:fiduciary duty to the company of the board they sit on. They are expected to alway🐎s act in the best interests of the company. Because of their specialized knowledge about the inner workings of the company, inside directors can be a key element in a company’s success.

Roles and Responsibilities of♌ an Inside Director

Inside directors typically include a company's top executives, such as the chief operating officer (COO) and the chief financial officer (CFO), as well as representatives of major shareholders, lenders, and additional stakeholders, such as 澳洲幸运5开奖号码历史查询:labor unions.

An 澳洲幸运5开奖号码历史查询:institutional investor who is considering making a si🀅zable investment in a company will often insist on appointing one or more representatives to the com𒆙pany's board of directors.

As🌄♔ the roles of inside directors vary, as they can be CEOs, CFOs, COOs, and more, their list of responsibilities is vast. Some of the responsibilities include the following:

• Determining the overall strategy of the firm
• Building out the executive team
• Seeking out and evaluating mergers and acquisitions
• Communicating with shareholders and the public
• Ensuring corporate social responsibility
• Financial forecasting
• Cash flow management
• Creation of financial reporting
• Overseeing project developments and timelines
• Implementing new processes

Inside Director vs. Outside Director

Inside directors and outside directors help balance each other on a company’s board. An outside director (also referred to as a 澳洲幸运5开奖号码历史查询:non-executive director), is not an employee or stakeholder in the company. Outside directors receive an annual 澳洲幸运5开奖号码历史查询:retainer fee in the for♍m of cash, benefits, and/or stock options, while inside directors do not.

Public companies are required, from a 澳洲幸运5开奖号码历史查询:corporate governance perspective, to have a certain number or percentage of outside directors on their boards. In theory, outside dir🍷ectors are more likely to provide unbiased opinions.

In addition, they can bring in external expertise. A downside of outside directors is that they may have less information on which to base certain decisions since t♒hey are removed from the day-to-day operations of the company. Also, outside directors risk facing out-of-pocket liability if a judgment or settlement occurs that the company and/or its insurance policy does not fully cover.

Inside Directors and Conflicts of Interest

Strict rules apply to inside directors with regard to securities trading. Since inside directors have access to classified company information (also called insider information), they cannot trade on 澳洲幸运5开奖号码历史查询:material information that is not public.

For example, if an inside director knows that the company is about𒉰 to change CEOs and senses this will highlight a significant weakness in the company’s management structureꦡ, which could subsequently lead to a decline in share price when divulged, the director may not sell or short company shares prior to the announcement being made.

This would be a case of 澳洲幸运5开奖号码历史查询:insider trading that is punishable by up to several years in prison, alo🌼ng with hefty financial fines, depending on the gravity of the case and how much the public is affected.

The Bottom Line

Inside directors have a spec🍒ific influence in a company and are an employee of that company, contrasted with outside directors, who also have a specific influence but are not employees. Inside directors have a fiduciary duty to the company and are a key component to its success, particularly since they often run it through their influential positions, such as a COO or C🐈FO.