Inside Director Definition
An inside director refers to a board member of a company or organization who is an employee or officer of the company or a major stakeholder. An inside director serves in the interest of the company alongside representing the interest of other stakeholders in the company.
An employee who functions in a capacity and also sit on the company’s board is an inside director. A good example of an inside director is the CEO of a company who is also a board member of the company. Therefore, inside directors are related to the company they oversee and have inner knowledge and insider information about the company.
A Little More on What is an Inside Director
Typically, an inside director is a top executive in a company and also sits on the company’s board. Inside directors are required to act in the best interest of their companies, despite that they must also represent the interest of other stakeholders. These directors are key to the success of a company. Examples of inside directors are chief executive officers (CEOs), chief operating officer (COO), the chief financial officer (CFO) and the chief operating officer (COO). representatives of labour unions or major shareholders of a company can also become inside directors of the company.
Inside Director and Outside Director
A company’s director, whether inside or outside director has a fiduciary duty to the company which is to serve in the best interest of the company. This duty comes before any other duty, it is their priority. An outside director on the other hand, is not a major stakeholder of an employee of the company. Outside directors render unbiased inputs to the company, especially in times of decision-making.
As part of the regulations for public companies, all public companies are required to maintain a balance in the percentage of outside directors and inside directors that sit on their boards.
Inside Directors and Conflicts of Interest
Typically, the inside directors of a company has inner knowledge of the company, these executives have first hand information about the company. Due the their access to classified information with regards to securities trading, there are certain regulations that restrict inside directors from engaging in trade using insider information. Hence, an inside director, despite being aware of classified information about the securities of a company cannot use the knowledge for personal advantage. Inside directors who attempt to use classified information for personal gains can attract fines or/and other punishments.