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What Does an outside Director Do?

By Theresa Miles
Updated Mar 03, 2024
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An outside director provides management assistance and oversight to corporations. As a member of the board of directors, a person who accepts this position has a fiduciary duty to protect the interests of shareholders. His designation as an outside director indicates that he has never been an employee or principal shareholder of the corporation, unlike other people who sit on the board as inside directors. As an outsider, this director is expected to bring an unbiased perspective to the board's decision-making process.

The board of directors is a group of people who are principally tasked with the responsibility of ensuring a corporation operates in the best interests of shareholders, and not for the personal enrichment of the management. A corporation is owned by the people who hold shares of its stock, rather than the executives or managers of the business. Stockholders can be located anywhere in the world and do not necessarily have the ability, or the right, to interfere in the day-to-day management of the business to ensure their investment is handled properly.

The law allows the board of directors to function as the proxy for all of the shareholders who are invested in the company. Directors can be appointed to the board from inside or outside of the corporation. Inside directors are usually founders or individuals who hold large blocks of the the corporation's shares and also work for the come as a principal executive. Outside directors are added to the board to offset the influence of inside directors by adding unbiased perspectives. The directors of the board are required to meet a certain number of times a year as indicated by the corporation's bylaws and current needs.

All members of the board of directors, including outside directors, have certain duties that are prescribed by law and serve to protect the interests of the public. These duties include providing financial oversight to ensure the corporation is not mishandled, managing the staffing and conduct of the chief executive positions and providing strategic management of company-wide matters. In addition to these obligations that fulfill a director's fiduciary duty as required by law, an outside director is ordinarily expected to contribute to the corporation in many other ways.

When an outside director is invited to serve on a board, he is expected to make his expertise, credentials, influence and resources available for the benefit of the corporation. These contributions can manifest in many different ways, from influencing an important regulatory filing on behalf of the corporation to using media contacts to generate positive press. He can be asked to take on additional responsibilities, such as serving as the chairman of the board or acting as the corporation's spokesperson. Generally, in addition to the ordinary duties that are required by law, an outside director can be asked to sit on project-based committees or undertake any task that benefits the corporation as a whole.

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