Nominee directors: silent guardians or corporate puppets?

A nominee director must act in the best interest of the company in addition to the duty to represent the nominator’s interest. The Malaysian Companies Act 2016 has stipulated the responsibilities of a nominee director but did not specifically state the actual duties of a nominee director. Nominee directors are appointed to the board to oversee the management of the company. Their presence on the board has raised significant debate over their role and effectiveness. Some studies argued that nominee directors are more of a guardian than a fulfiller of their duties. Thus, this study examined the nature and the duties of nominee directors in companies in Malaysia. Doctrinal research was employed to analyse the laws in statutes, case laws and other relevant documents to ascertain the legal duties and functions of nominee directors. It was found that a nominee director is neither a puppet nor solely a guardian, but rather an appointed representative of a significant shareholder clothed with fiduciary duties. Nominee directors' fiduciary duties are primarily responsible for the company’s best interests and not just the interests of the shareholders who appointed them, although their duty to the company may sometimes conflict with the wishes of their nominator. The result of this study will add knowledge to the literature on the duties of nominee directors, whilst legislators and policymakers may use the information to strengthen corporate governance in encouraging transparency and accountability in companies.