What Is a Dummy Director?
A dummy director is a member of the board of directors who acts and votes on behalf of a non-board member. Although they are called a director, a dummy director is only a figurehead. They exercise no real control over the company, and they have no financial interest in it. Dummy directors are also known as an accommodation director or nominal director.
Understanding Dummy Directors
Dummy directors are most commonly used by start-up companies that are going public. To meet regulatory requirements, they establish a board of directors by electing a number of nominee directors to serve temporarily, and act on behalf of management, until permanent directors can be found.
As stand-in members of a board, dummy directors would experience a conflict of interest if they sat on the board for any length of time. This is because all board members have legal fiduciary duties to the corporation that they are representing. Board members are expected to act in good faith, with candor and confidentiality, and in the best interest of the corporation.
- A dummy director is a member of the board of directors who acts and votes on behalf of a board member.
- Dummy directors are commonly used by start-up companies that use nominee directors to serve temporarily, and act on behalf of management, until permanent directors are found.
- Dummy directors are figureheads and exercise no real control over a company.
Example of a Dummy Directors
In a 2013 case involving Puda Coal, a Chinese company charged with fraud and forging important documentation, a judge ruled that directors appointed by the Delaware-based company were culpable in the fraud. "Independent directors who step into these situations involving essentially the fiduciary oversight of assets in other parts of the world have a duty not to be dummy directors,” the court said. In another case in Australia, a baker was made director of two companies—a horse-training business and an Indian restaurant—to pony up the costs of hiring solicitors for help with his business. The solicitor's business was later found to have evaded taxes to the tune of $100 million.