Factsheet covering Directors Responsibilities

1. Directors’ Responsibilities
Leslie Spiers
Boardroom Dynamics

3. Corporate problems?
What’s this got to do with companies outside
the FTSE 350?
Does it mean yet more regulation?

4. Corporate Governance as
business improvement
Internal improvements
Systems
Roles
Processes
External improvements
Compliance
Reputation

5. The role of the Board in SME’s
2007 Research into SME’s
Boards were often a legal formality
Boards appear to contribute little of
significance to business development
Boards dealt with operational matters as
opposed to strategic issues
Boards dealt with short term goals (survival)

6. Strategic versus operational planning

7. Board structures and processes
Lack of formal committees
Few non-executive directors
Lack of risk management systems
Less advice from auditors as threshold for
independent audit increases

8. Governance and business improvement
Risk reduction through identification and
management
Wider experience in decision-making
Stakeholder engagement through identification
and management

9. Stakeholder groups
Suppliers
Shareholders
Local
Government
Overseas
Governments
The Business
Bankers
Government
Press Competitors
Regulators
Employees
HMRC

10. Further considerations
Reputation management
Greening of business (the business case for
social responsibility and integrity)
Corporate governance is about changing
organisational cultures rather than regulations

11. How then to determine board room
competencies to develop excellence
in direction?

12. The business literature is unanimous
Boards are no longer a cosy affair
Proactive and transparent
Growth in status of NEDs = more scrutiny
Ultimately need honest, diverse opinions,
courage, and knowledge to improve the board
decisions
BOARD FIT and mix of exec and non execs

13. Board fit... depends on the business

14. NED recruitment
Historically poor
Less than 4% have formal interview
< 1/3 Chairs help NED prepare for the role
Smoke filled rooms

15. NED attributes 1
Breadth of experience
Team player
Well prepared
Communicator
Sharp mind
Creative and visionary
Focused on board improvement

16. NED attributes 2
Committed
Confident
Independent
Experience
Challenge
Supportive
Focus on company performance
Legal responsibility
Conscience of shareholders

17. Appointing executive directors
Competent in 4 key areas
– Results orientation
– Strategic orientation
– Collaboration
– Independence
But
– Diversity vs. group think
– Snakes in suits – psychopathy in the
board room

18. Who to appoint?
Every instinct points you to appoint someone
you like, and someone like you
Diversity however gives you
– Long term creativity
– Allows you to match your markets
Needs continual “management”
See iod.com for model service agreement

19. What is a Company?
It is a separate legal entity
It is recognised as a legal “person”
It has personality & can act as a person
It has a constitution
It has long life potential
It can claim under Human Rights Act

20. What is the purpose of a Company?
Designed to make profits to distribute
To limit liability of investors
Companies Ltd by guarantee can use surplus to
the benefit of the company

21. What are the features of a Company?
It is separate from individuals in it
It creates a separate person
It has its own life and responsibilities
It has members who subscribe capital
It is set up by shareholders to protect themselves
It is registered with Companies House
It has regulations and officers to run its affairs

22. The Company and its Directors
Co Act 2006 says the primary duty of a director is to
the Company, but also to recognise a duty to…
– towards shareholders – towards trading partners
– towards employees – towards the state
Co has a decapitated head – the Board
Board is the “thinking and controlling mind”
Rail Track, Herald of Free Enterprise, Lyme Regis

23. Stakeholder groups
Suppliers
Shareholders
Local
Government
Overseas
Governments
The Business
Bankers
Government
Press Competitors
Regulators
Employees
HMRC

24. Directors’ legal requirements
Now codified in Companies Act 2006
“Enlightened shareholder Interest” – future and potential
Act within your powers
Promote the success of the company
Have regard to other stakeholders
Exercise independent judgment
Exercise reasonable care, skill and diligence
A general duty to avoid conflict of interest
Insolvency

25. 6 Factors not to be ignored
1. Likely long term consequences of a decision
2. Interests of employees
3. Need to foster relationships with suppliers & customers
4. Impact of the business in the community &
environment
5. Maintaining high standards of business conduct
6. Need to act fairly between members

26. Get or keep out of gaol
No requirement for extensive paper trail
Well prepared board papers that
– Deal with relevant factors
– Demonstrate these have been considered
– Minute reflects the decision

27. Who is a Director?
Types of Director
– Executive and Non Executive
– Shadow
– De Facto
Must be at least 1 “natural person” on the
board

28. Prohibitions on acting as a director
Undischarged bankrupts
Under the Directors Disqualification Act 1985
Person under 16 years old (from Oct 2008)
From April 2007 no upper age limit
Articles may impose further disqualifications

29. What is the Board for?
"The job of the Board is all to do with creating
momentum, movement, improvement and direction.
If the Board is not taking the company purposefully
into the future, who is?"
Sir John Harvey-Jones

30. The Board's key purpose
Seek to ensure the company's success by
collectively directing its affairs and meeting the
legitimate interests of its shareholders and
relevant stakeholders

31. The Board's main functions
Policy formulation
Accountability and compliance
Strategy and leadership
Supervision of management
Providing clarity – no mixed messages

33. Responsibilities of the Board
Accountability Policy Formulation
To the company Stating Purpose
To Owners
EXTERNAL Creating Vision and Values
To regulators and legislators
To Stakeholders Developing corporate climate
Ensuring Directorial Audit Monitoring the external environment
Governance Review Cycle Strategy Review Cycle
The Board
Supervising Management Strategic Thinking
Performance Management Market Positioning
INTERNAL Budgetary Control Setting corporate direction
Review of key business results Reviewing resources
Organisational capability Setting implementation processes
SHORT TERM LONG TERM
Operations Review Cycle

34. Accountability
To ensure that the Company complies with laws
& regulations and that management & employees
comply with carrying out the Board's decisions
Very onerous duties and
different from management

35. Governance
The Board is the 'Mind & Will' of the Company
In law – all directors are jointly responsible
All directors are equal (technically)
Executive powers are vested in the Board
Board is always responsible for the Company's
affairs
Directors’ primary duties are owed to the Company
Board must have regard for the shareholders
and other interested parties

36. Strategy
Board needs to set tone, standards, values
Board needs to agree common vision
A Board Charter clarifies ToR
Directors accept & utilise their differences
Reward contributions towards achieving the
overall vision
Selecting the MD/CEO - personifies the
Board's leadership

37. Direction and management
Direction
Formulation of strategy
Acquisition & allocation of overall resources
Setting policies
Establishing direction
Emphasising the mission & the shared vision

38. Direction and management
Management
Running the business
Shorter term operational matters
Financial, production, market management

39. Power & responsibility R
E
S
P
P SHAREHOLDERS
O
O N
S
W BOARD I
E B
I
R L
MANAGEMENT I
T
Y

40. Board composition & organisation
"A Board may be composed of brilliant
individuals and yet be ineffective.
It can only fulfill its true potential as a Board if it
is properly selected, organised and led."
Good practice for directors – standards for
the Board

41. Board meetings
Directors powers are collective
Need a quorum to convene a board meeting
No director must be excluded
Right to inspect accounts and minutes
Board minutes must be kept

42. Board structures and styles
BOARD
GOVERNANCE
MANAGEMENT MANAGEMENT
ORGANISATION

43. All – Executive Directors Board

44. Majority Executive Directors Board

45. Majority Non-Exec Directors Board

46. All non-Executive Board

47. Roles of chairman and Managing
Director
Difficult to be objective about the performance of management
Roles ideally need different temperaments and motivations
More difficult for Executive Directors to act in their director roles
Confusion as to which hat is being worn in the boardroom
Too much power in one person & two heads are better than one
Under pressure, management take precedence over governance
Above a certain size, there is too much for one person to do
Exterior profile is narrower than with two persons
One person is more vulnerable than two

48. In Summary… Directors
Establish clarity of mission, vision and values
to lead the broad direction of the company
Decide upon the strategies and structure
to ensure the company's survival & prosperity
Delegate to management and involve staff
to effect implementation of strategy, policies & plans
Exercise responsibility to shareholders and other
interested parties
to promote & meet their legitimate interests