What managing director means
A managing director is a director to whom the board has delegated the running of the company.
Every director owes duties to the company. A managing director owes those same duties and, in addition, holds an executive role: they manage the business, implement what the board decides, and represent the company externally.
Authority comes from two places. The articles of association permit the board to appoint a managing director and delegate powers, and the board's resolution sets out what has actually been delegated. A managing director's powers are therefore whatever the articles allow and the board has conferred, not an inherent set that comes with the title.
The distinction from the chairman is worth stating. The chairman leads the board; the managing director runs the company. In many Nigerian private companies one person does both, and separating the roles is a governance improvement that costs nothing.
The title chief executive officer is used interchangeably in practice, and CAMA speaks in terms of a managing director.
How it is used
A managing director occupies two positions at once, and they must be documented separately.
The directorship, which comes with appointment as a director, entry in the CAC records, and the statutory duties that attach to the office.
The employment, which is a service contract covering salary, benefits, notice, duties, confidentiality and post termination restrictions.
Separating them matters most on exit. Removing somebody as a director does not terminate their employment, and terminating their employment does not remove them as a director. A company that does one and forgets the other ends up with a former employee who is still on the board, or a director with no role who is still owed salary.
The appointment should be recorded in a board resolution specifying what is delegated, the CAC filing should be made, and the service contract should be signed.
Authority limits deserve attention too. The resolution should state what the managing director can commit the company to without further board approval: contract values, borrowing, capital expenditure, hiring above a level. Without limits, the board has delegated everything.
Key features
- A director appointed by the board to manage the company day to day
- Authority derives from the articles and the board's delegation
- Holds both an office as director and an employment relationship
- The two must be documented and terminated separately
- Owes the statutory duties of a director under CAMA
- Delegated authority should carry stated financial limits
How this works in Nigeria
CAMA 2020 codified directors' duties, and a managing director is squarely within them: to act in what they believe to be the best interests of the company, to exercise powers for a proper purpose, to avoid conflicts of interest, and not to make secret profits.
Those duties are owed to the company rather than to the shareholder who appointed them, which is a point that matters in Nigerian companies with a dominant shareholder. A managing director instructed by a majority shareholder to do something contrary to the company's interests is exposed personally, and the instruction is not a defence.
The removal question is the second recurring Nigerian issue. Shareholders can remove a director under CAMA following the statutory procedure, including the notice requirements and the director's right to be heard. That removes the office. The employment contract survives it, and a managing director removed as a director may have a substantial claim for breach of their service contract.
Well drafted service contracts address this expressly, providing that removal as a director terminates the employment and stating what is payable when it does.
The third point is apparent authority. Third parties dealing with a managing director are generally entitled to assume they have the authority the role usually carries, so internal limits that were never communicated may not protect the company against an outsider who acted in good faith.
Managing director vs chairman vs executive director
Three board roles that are frequently held by the wrong people in the same company.
The chairman leads the board. They set the agenda, chair meetings, and manage the board's effectiveness. It is a governance role rather than an executive one.
The managing director runs the company. They implement board decisions, manage the business day to day, and are accountable to the board for performance.
An executive director is a director who is also an employee with an operational role, such as a finance director. They sit on the board and run a function.
A non executive director sits on the board without an operational role, and brings independent oversight.
Combining the chairman and managing director roles concentrates authority and removes the check the separation provides. In a two person company that is unavoidable. In a company taking outside investment it is one of the first things an investor asks about.
Limits and risks
Delegated authority is only as wide as the articles and the resolution allow, and a managing director acting beyond it exposes themselves internally even where the company is bound externally.
Apparent authority also means internal limits may not protect the company against third parties, so limits should be communicated where they matter.
The dual role creates conflicts. A managing director negotiating their own service contract, or voting on a matter in which they are interested, must declare the interest and stand aside.
And the office is precarious. Shareholders can remove a director following the statutory procedure, and no amount of operational success prevents it.
Worth knowing
Document the directorship and the employment separately, and state in the service contract what happens if the person is removed as a director. Nigerian companies remove a managing director at a general meeting and then discover the employment contract is still running with no termination provision that fits.
Questions people ask
What does a managing director do?
Runs the company day to day under authority delegated by the board. The role carries the statutory duties of a director as well as an executive employment relationship.
Where does a managing director's authority come from?
From the articles of association permitting delegation and from the board resolution specifying what has been delegated. The title does not carry an inherent set of powers.
Is a managing director an employee?
Usually yes, under a separate service contract. The directorship and the employment are two distinct relationships and both must be documented, and terminated, separately.
Can shareholders remove a managing director?
They can remove them as a director following the statutory procedure under CAMA, including the notice requirements and the right to be heard. That removes the office but does not by itself end the employment contract.
Who does a managing director owe duties to?
The company, not the shareholder who appointed them. An instruction from a dominant shareholder to act against the company's interests is not a defence to a breach of duty.
Should the chairman and managing director be the same person?
In a very small company it is unavoidable. Separating them removes a concentration of authority and is one of the first governance points an incoming investor asks about.