Categories
Non-Executive Director Opinion

10 things Non-Executive Directors can do to satisfy their legal responsibilities

Falling foul of the law can have serious consequences for Non-Executive Directors – here are 10 steps you can take to avoid it happeningNED3

The 2006 UK Companies Act, which sets out the legal duties and responsibilities of Company Directors, is one of the longest pieces of legislation ever written. Falling foul of the law can have serious consequences for directors including personal and potential criminal liability yet many directors, particularly NEDs, take on their roles in blissful ignorance of the law.

Before becoming a company director you should have a basic understanding of your legal duties and responsibilities and you should check for indemnity provisions in the company articles of association and your Directors’ and Officers’ (D&O) insurance arrangements.

Once in post, here are 10 things you can do to avoid the potential pitfalls:

  1. Remember that compliance is the responsibility of all directors – not just the Company Secretary, Chair, CEO or other Executives.
    Whilst individual directors may have particular responsibility for the day-to-day mechanics of compliance, it is the board’s responsibility, collectively, to ensure that the statutory requirements are met. Filing annual returns and accounts may be the job of the Finance Director or Company Secretary but persistent failure to file on time can lead to penalties being imposed on all the other directors, including the NEDs. Make sure that the board receives regular assurance on compliance matters and do not assume it is being taken care of by the other directors.
  2. Check your status as a Company Director.
    Many Non-Executives start working with boards as advisors or consultants before they are formally appointed as NEDs and assume that as they are not registered as a company director at Companies House then the law does not apply to them. If you actively take part in board meetings or hold yourself out to be a director then you run the risk of being classified as a “shadow’ or “de facto’ director and thus share the same legal duties, responsibilities and liabilities as the other board members. Make sure that your legal status and that of the other board attenders is clear.
  3. Keep accurate records of board meetings.
    Every board meeting agenda should contain an item which gives directors the opportunity to review the minutes of the previous meeting. Make sure that you use this opportunity to make any corrections that are required to ensure that the minutes accurately record the discussions that took place together with any resolutions and actions. Pay particular attention to items where your personal contribution is mentioned. Keep your own copy of board minutes for at least six years after you have ceased to be a member of the board..
  4. Be aware of key statutory filing requirements.
    Make sure that you know when key documents such as the annual accounts and annual returns need to be filed. You can use the Companies House web-check facility to check that the business is up to date with its filing requirements. Also be aware of other matters such as certain shareholders’ resolutions, allotments of shares and the appointment of new directors, which need to be notified to Companies House within specified time limits.
  5. Familiarise yourself with the Articles of Association and other constitutional documents.
    One of the prime duties of a company director, as set out in the 2006 Companies Act, is to ‘act within powers’. These powers can be found in the company’s Articles of Association together with any shareholder agreements or contracts which form the constitutional documents for the business. As soon as you are appointed to a board you should read these documents and familiarise yourself with the specific requirements for the calling of a shareholders’ meeting or provisions relating to directors’ meetings and remuneration. The board should review the Articles on a regular basis to ensure that they are still relevant to the operation of the business
  6. Take all reasonable steps to avoid conflicts of interest.
    ‘Declaration of interest’ should be a standing agenda item for a board meeting, giving directors the opportunity to declare a personal interest in an item to be discussed at that meeting. There should also be a register of interests, reviewed annually, which records the external interests of board members and their immediate families. These are both particularly important for NEDs who are more likely to have external interests than the executives. However, simply declaring an interest is not necessarily all that a director has to do to avoid a conflict of interest. It may be appropriate to physically absent yourself from the board meeting for the duration of the discussion of a matter where you are conflicted and have this absence clearly recorded in the minutes. In some cases directors resign their posts and re-join the board once a conflicted matter has been resolved.
  7. Avoid accepting benefits from third parties.
    Taking a bribe from a potential supplier is clearly wrong but what about corporate hospitality? As with conflicts of interest, many boards keep a register to record gifts or hospitality given to directors or senior managers, usually above a set amount. They also have specific policies and procedures that directors should adhere to. The best advice though is not to accept anything, even a sandwich or cup of coffee if it could be interpreted as an inducement by a third party.
  8. Watch out for insolvency.
    After failing to file your statutory documents on time, the next most heinous crime a director can commit is ‘trading whilst insolvent’. A company is insolvent if it cannot pay its debts when they are due to be paid. Many businesses, especially start-ups or those with high growth can sail near to or actually become technically insolvent. They can then only continue to trade if they have a reasonable belief that they can trade out of their insolvent position. It is vital therefore, for the board to seek external advice from an insolvency practitioner as soon as possible in order that there is independent confirmation of the reasonableness of their position. Failure to act promptly and responsibly can leave directors open to unlimited personal liabilities.
  9. Speak out – do not ignore warning signs.
    If you have concerns about any company decisions, or the content of any documents such as accounts or board papers, make your views known. It is your duty to act with reasonable skill, care and diligence. The 2006 Companies Act does not differentiate between executive and non-executive directors – as a board member you are jointly and severally liable for all board decisions and can become personally liable if the board knowingly does something illegal.
  10. Get trained to become a company director.
    A Non-Executive Director appointment can be a very rewarding career move but it is not something that should be entered into lightly. In addition to performing due diligence on the business, a prospective NED should fully understand the duties and responsibilities of a company director.
    Excellencia provide a 1-day course for prospective NEDs (How to become a Non-Executive Director) for £330 (ex VAT)
Categories
Non-Executive Director Training

How to become a Non-Executive Director – Bristol 24 February 2015

Are you thinking of becoming a Non-Executive Director as part of a Portfolio Career or to develop your boardroom skills prior to taking up an executive director role?

How to become a Non-Executive Director

Join us on Tuesday, February 24 2015 to find out how you can become a Non-Executive Director

“Unlike many courses I have attended in the past, How to become a Non-Executive Director went beyond just the technical aspects of being a ‘Non-Exec’, and reflected on the differences in the approach required compared to being an Exec Director.
It allows you to make a fully informed decision on whether a Non Exec role is right for you, and if it is, how to go about finding opportunities.
An invaluable day of learning!”

Alastair Lewis Director at Smaointe Ltd

The How to become a Non-Executive Director course helps you to plan and prepare for your first NED position. It instils a real sense of what is expected of NEDs, and how you can meet the challenge.

This one-day interactive course is aimed at aspiring NEDs and covers essential knowledge about roles, responsibilities, strategy and corporate governance that are key foundations for a Non-Executive board role. It also considers up to date thinking on corporate governance and the responsibilities of owners, the board and employees.

This is followed by practical sessions on identifying NED opportunities, the process of obtaining a first appointment and performing due diligence before any position is accepted. There is emphasis on the importance of presenting your experiences with clarity and relevance.

This course identifies the various ways and circumstances in which non-executive directors can make an effective contribution to a board’s work. It also examines methods for their selection and reviews their motivation, induction and reward.

Who should attend?
Individuals who are currently a non-executive director; those seeking appointment as a non-executive director and those looking to appoint a non-executive director.

What to expect?

  • Clarifies how and why non-executive directors can strengthen a board
  • Provides practical guidance on how best to secure an appointment as a non-executive director

Course objectives
Participation on this course will provide you with the knowledge to:

  • Clarify the board’s role, purpose and key tasks
  • Appreciate the contributions that non-executive directors can make to the board in different types of company and situations
  • Recognise the qualities and experience needed to fulfil a non-executive director appointment
  • Appreciate appropriate methods for finding, selecting, appointing and rewarding non-executive directors
  • Understand the preparation required to interview for or be interviewed for the post of non-executive director

Course Leader: David Doughty CDir FIoD

David Doughty - Chartered DirectorThe course is delivered by David Doughty, a Chartered Director and highly experienced Non-Executive, Chief Executive, Chair, Entrepreneur and Business Mentor. David has extensive executive and non-executive experience in small and medium enterprises in private and public sectors. He is also a board level consultant to multi-national organisations and a Chartered Director Ambassador for the Institute of Directors. See his LinkedIn profile here: (http://uk.linkedin.com/in/daviddoughty)

Key Details
Duration: 1 day
Location:

Orchard Street Business Centre
14 Orchard Street
Bristol BS1 5EH

Price

£330.00 (ex VAT)
Payment with Booking Price
£300.00 (ex VAT)
Tier1 Member Price
£280.00 (ex VAT)

Book Now

To see course dates and to book your place now follow this link:
Course Registration
The fee includes lunch, refreshments and a copy of the course handbook

Attendance counts as 6 CPD hours of structured learning


 

Discounts on Excellencia course fees are available for:

Categories
Non-Executive Director Training

How to become a Non-Executive Director – Bristol 20 January 2015

Are you thinking of becoming a Non-Executive Director as part of a Portfolio Career or to develop your boardroom skills prior to taking up an executive director role?

How to become a Non-Executive Director

Join us on Tuesday, January 20 2015 to find out how you can become a Non-Executive Director

“Unlike many courses I have attended in the past, How to become a Non-Executive Director went beyond just the technical aspects of being a ‘Non-Exec’, and reflected on the differences in the approach required compared to being an Exec Director.
It allows you to make a fully informed decision on whether a Non Exec role is right for you, and if it is, how to go about finding opportunities.
An invaluable day of learning!”

Alastair Lewis Director at Smaointe Ltd

The How to become a Non-Executive Director course helps you to plan and prepare for your first NED position. It instils a real sense of what is expected of NEDs, and how you can meet the challenge.

This one-day interactive course is aimed at aspiring NEDs and covers essential knowledge about roles, responsibilities, strategy and corporate governance that are key foundations for a Non-Executive board role. It also considers up to date thinking on corporate governance and the responsibilities of owners, the board and employees.

This is followed by practical sessions on identifying NED opportunities, the process of obtaining a first appointment and performing due diligence before any position is accepted. There is emphasis on the importance of presenting your experiences with clarity and relevance.

This course identifies the various ways and circumstances in which non-executive directors can make an effective contribution to a board’s work. It also examines methods for their selection and reviews their motivation, induction and reward.

Who should attend?
Individuals who are currently a non-executive director; those seeking appointment as a non-executive director and those looking to appoint a non-executive director.

What to expect?

  • Clarifies how and why non-executive directors can strengthen a board
  • Provides practical guidance on how best to secure an appointment as a non-executive director

Course objectives
Participation on this course will provide you with the knowledge to:

  • Clarify the board’s role, purpose and key tasks
  • Appreciate the contributions that non-executive directors can make to the board in different types of company and situations
  • Recognise the qualities and experience needed to fulfil a non-executive director appointment
  • Appreciate appropriate methods for finding, selecting, appointing and rewarding non-executive directors
  • Understand the preparation required to interview for or be interviewed for the post of non-executive director

Course Leader: David Doughty CDir FIoD

David Doughty - Chartered DirectorThe course is delivered by David Doughty, a Chartered Director and highly experienced Non-Executive, Chief Executive, Chair, Entrepreneur and Business Mentor. David has extensive executive and non-executive experience in small and medium enterprises in private and public sectors. He is also a board level consultant to multi-national organisations and a Chartered Director Ambassador for the Institute of Directors. See his LinkedIn profile here: (http://uk.linkedin.com/in/daviddoughty)

Key Details
Duration: 1 day
Location:

Orchard Street Business Centre
14 Orchard Street
Bristol BS1 5EH

Price

£330.00 (ex VAT)
Payment with Booking Price
£300.00 (ex VAT)
Tier1 Member Price
£280.00 (ex VAT)

Book Now

To see course dates and to book your place now follow this link:
Course Registration
The fee includes lunch, refreshments and a copy of the course handbook

Attendance counts as 6 CPD hours of structured learning


 

Discounts on Excellencia course fees are available for:

Categories
Opinion

Working with the board in the 21st century

board

Challenges

Boards of organisations of all shapes and sizes in the private, public and voluntary sectors face new challenges due to the way society expects businesses and not-for-profits to behave.

These challenges have been brought about by the corporate excesses of the last century and the dramatic failures of the financial sector, particularly banking, around the world since the 2008 crash.

Whilst demanding a new way of thinking from boards and their directors, the new legislation and corporate governance code also provides new opportunities for coaches, mentors and consultants to work with boards, either on a one-to-one basis or as a team.

Keywords

corporate governance, directors, non-executives, coaches, mentors, consultants

The Challenge for the Board

Corporate Governance in the UK as set by the Corporate Governance Code and the 2006 Companies Act has a very different feel to it in the 21st century than in previous times when it was assumed that a director’s duties started and finished with making sure that shareholders received an adequate return on their investment.

Today, company directors are expected to create and maintain a sustainable business which creates wealth for its stakeholders, employees, customers, suppliers and shareholders and adds value to society at large – in sharp contrast to the ‘unacceptable face of capitalism’, asset-stripping, short-termism which was prevalent in the 80’s and 90’s.

In parallel with this sea-change in company governance we have also seen the rise of a new breed of leadership, reflecting the need to engage and empower employees rather than keep their ‘noses to the grindstone’ or their ‘feet to the fire’.

The Board’s prime purpose is to set and maintain the organisation’s Mission, Vision and Values. Often it is the values, which are seen as ‘soft and fluffy’ by a significant number of Small to Medium-sized Enterprises (SMEs) which cause directors the most difficulty.

Yet, as we have seen recently with Tesco, it is when a business loses sight of its core values (protests against new stores and boycotts by farmer suppliers) there is probably much worse to come.

The Challenge for the Coach

Given these changes in the ways boards are expected to work we can expect similar changes in the support that boards and directors require. For example, it is now commonplace for executives to have a personal coach or coach/mentor and the government backed GrowthAccelerator programme, now re-badged as the ‘Business Growth Service’, has funded a number of business coach interventions for SMEs with high growth potential.

Boards are also looking for more permanent support in the form of Non-Executive Directors (NEDs). Looking at the skillset required to be an effective NED it is clear that there is a significant overlap with the skillsets of Consultants, Coaches and Mentors. Indeed many people have built successful portfolio careers by performing a number of these roles at the same time (though probably not with the same client).

Diagram 1: The Board support model

Examining the four roles, it is useful to consider them in pairs, sitting at opposite ends of a spectrum, as shown above. On one axis we have the Coach / Mentor spectrum and on the other the Non-Executive Director / Consultant spectrum. That is not to say that the two axes are mutually exclusive – in any given situation, individuals can perform a number of roles, although one will always be dominant.

NEDs

In the UK unitary board structure, Non-Executive Directors have exactly the same legal duties and responsibilities as the Executive Directors. In a way, this is what gives them the authority to be listened to at Board meetings – they have just as much to lose as the executives if anything goes wrong.

They do, however, perform completely different roles to the executives, who are full-time employees with functional responsibility for running the business. Non-Executive Directors are part-time, ‘hands-off’, officers of the company who take a longer term-strategic view. The NED role is best summed up by the two words ‘critical friend’, and it is striking the right balance between challenge and support that makes a NED effective.

Coaches

In the context of supporting the board, a Coach is a catalyst – someone who will enable the board members, either individually or as a team, to develop and face challenges by self-realisation and awareness.

Mentors

Business Mentors provide guidance from the perspective of having ‘been there, done it and got the T shirt’. The end points of the Coach / Mentor continuum are well understood but there is much debate about where Coaching stops and Mentoring begins. In my experience, at board level, most support is delivered somewhere near the middle of the spectrum – with a mixture of coaching and mentoring as appropriate. This is likely to be delivered to individuals and the board as a whole.

Consultants

The prime difference between being a Non-Executive Director and a Consultant is that a NED has the same legal duties and responsibilities as all the other board members, whereas a Consultant only has a duty of care to deliver a specified programme of work.

There is a commonly held misconception, particularly amongst SMEs, that having a NED on the board is a cheap way of getting consultancy. NEDs should be wary of this and should try to avoid getting sucked in to a ‘hands-on’ role within the business.

There are times in the life of a business or not-for-profit when it is appropriate for everyone, including NEDs, to get stuck in to resolve specific issues – and there is nothing wrong with this, providing it is not a regular occurrence.

I have known cases where, in order to avoid conflicts of interest, NEDs have resigned from the board, undertaken a piece of consultancy work and then re-joined the board when the work was completed. This is a little extreme, but as with the Coach / Mentoring axis, in reality individuals may be asked to provide a mixture of Non-Executive and Consultancy support and the key is to make sure that the nature of the engagement is fully understood by the board with transparent arrangements for remuneration and performance management.

The Challenges of Diversity

Much is being made these days of the need for greater Board Diversity in terms of gender, ethnicity and disability. There is certainly a body of evidence to support the proposition that a more diverse board is more effective when it comes to making strategic decisions, and I fully support the move towards greater board diversity, especially with regard to having more women on board.

However, there is no clear agreement as to how this increase in board participation by women, ethnic minorities and those with a disability should be achieved. Countries such as Norway and Germany have imposed a legally enforceable quota for gender diversity, but even within these countries this move is not generally supported – especially by the ‘women on boards’ pressure groups. The feeling here is that women should be appointed to the board on merit and not as part of some box-ticking arrangement.

It is generally agreed that the make-up of the board should reflect the demographics of the employees, which in turn should be similar to the demographics of the wider community. The problem is that this is likely to take some time to achieve, and until there is a sufficiently large pool of diverse candidates to draw from, something more radical needs to be done to address the problem.

This is where our pool of talented, experienced, Non-Executive Directors, Consultants, Coaches and Mentors can play a significant role. Due to the ‘baby-boomer’ population bulge, there is a significant number of people with relevant commercial experience ideally placed to support boards as they become more diverse.

Unfortunately, it is these people, often white men, who are classed as ‘male, pale and stale’ and find it difficult to secure NED appointments. As the majority of boards are not diverse and the number of candidates with the desired characteristics, in terms of diversity, is low then this inevitably means that people will be appointed to boards without the necessary skills, experience, background or qualifications – thus reducing the effectiveness of boards which is exactly the opposite outcome to the one that is intended.

There is a solution to this problem and that is to use Associate & Alternate Director appointments to introduce new blood to the board without diluting its effectiveness. Combined with suitable support from experienced board members, this approach can achieve the aims of the board diversity agenda in an acceptable timescale.

Developing Associate and Alternate Directorships

An alternate director is someone who reports to a functional executive director and can take that director’s place at the board if the executive is unavailable. It is a way of ensuring that the key business functions are always represented at every board meeting and, by exposing non-board level staff to the workings of the board, it is a way of succession planning for the board.

Similarly, associate director appointments can be used to add new Non-executive Directors to the board in a non-voting capacity, so that they can gain valuable board experience and grow into the role rather than being thrown in at the deep end.

In both cases, formalised arrangements for coaching and mentoring the alternates and associates by the executives and non-executives are put in place with suitable one-to-one ‘buddying’. This arrangement benefits from the significant skills, knowledge, background and experience of the established directors to bring-on the aspirant directors before their first formal board appointment.

I’m a coach – get me in here!

Boards in general and SME boards in particular are reluctant to take professional advice. This may be due to the common perception that the meter is always ticking, racking up exorbitant bills whenever advice is sought form an accountant or lawyer. But it is essential that boards, in all sectors and of all sizes, take appropriate advice. Insolvency practitioners often tell me that if only businesses with financial difficulties had contacted them sooner they might have been able to save them.

This reluctance to seek external advice is particularly difficult for consultants, coaches mentors and those looking for non-executive director appointments. There are a great many boards out there, many of them are dysfunctional, and would benefit greatly from some external support. However, relatively few make effective use of what is available.

One of the key duties of a board is to manage the strategic risks inherent in the business. Effective risk management and assurance provides a framework for the board to determine how it should devote its time, paying particular attention to the areas where it should seek external advice and support.

The 2006 Companies Act

Companies have been around since Elizabethan times, yet it is the 2006 Companies Act, which for the first time, defines exactly what a company director’s duties are. One of the most important of the seven duties is the requirement for all directors to promote the success of the company.

The Act goes on to explain that this means having regard (amongst other matters) to:

  • The likely consequences of any decision in the long term;
  • The interests of the company’s employees;
  • The need to foster the company’s business relationships with suppliers, customers and others;
  • The impact of the company’s operations on the community and the environment; and
  • The desirability of the company maintaining a reputation for high standards of business conduct.

Implications for future coaches and mentors

In pursuit of these objectives, with the goal of creating and maintaining sustainable businesses, boards can make use of the guidance and support provided by Non-Executive Directors, Consultants, Coaches and Mentors.

If you have the skills to work with boards in these roles, then it is vital that you have a thorough understanding of the issues facing boards in the 21st Century which are shaping the way in which businesses of all shapes and sizes in the private, public and voluntary sectors need to be run.

References

The UK Corporate Governance Code 2014

https://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-2014.pdf

The 2006 Companies Act

http://www.legislation.gov.uk/ukpga/2006/46/pdfs/ukpga_20060046_en.pdf

The Business Growth Service

http://www.greatbusiness.gov.uk/businessgrowthservice/

What skills do Non-Executive Directors need?

http://www.nedworks.net/non-executive-director-careers/skills-non-executive-directors-need/

The UK Model of Corporate Governance Institute of Directors

http://www.iod.com/intershoproot/eCS/Store/en/pdfs/policy_publication_The_UK_Model_of_Corporate_Governance.pdf

Is your board dysfunctional? Australian Institute of Directors Volume 11 Issue 11, 12 Jun 2013

http://www.companydirectors.com.au/Director-Resource-Centre/Publications/The-Boardroom-Report/Back-Volumes/Volume-11-2013/Volume-11-Issue-11/Is-your-board-dysfunctional

About the author

David Doughty is a Chartered Director with a Masters in Company Direction from Leeds Business School. He works with boards and their directors in the private, public and voluntary sectors to improve their effectiveness and the performance of the organisations that they lead. David is a registered and approved GrowthAccelerator Coach and a certified EQ Mentor

You can contact David via E: david@doughtymail.com or M: 07876 653 563.

Published in

The future of coaching and mentoring: evolution, revolution or extinction? Part 1

Journal of the Association for Management Education and Development

Volume 21 ● Number 4 ● Winter 2014

Categories
Opinion

The UK Corporate Governance Code 2014 Update

The Financial Reporting Council (FRC) has issued an updated version of the UK Corporate Governance Code (the Code)

UK Corporate Governance Code

The latest update of the UK Corporate Governance Code has been issued by the Financial reporting Council and is available for download here.

The main focus for the 2014 update has been to significantly improve the quality of information available to investors about the risk management processes, the long-term health and strategic intentions of listed companies.

The FRC has continued the trend, which began with the 2006 Companies Act, of asking listed company directors to consider the long-term viability of the business, including solvency and liquidity looking forward for a period significantly longer than 12 months.

In an attempt to tackle the growing unrest amongst shareholders and particularly shareholder activists, over executive pay, boards of listed companies will also now need to ensure that executive remuneration is designed to promote the long-term success of the company and demonstrate how this is being achieved more clearly to shareholders – thus aligning executive reward with the sustained creation of value.

The key changes to the Code include:

Going concern, risk management and internal control

  • Companies should state whether they consider it appropriate to adopt the going concern basis of accounting and identify any material uncertainties to their ability to continue to do so;
  • Companies should robustly assess their principal risks and explain how they are being managed or mitigated;
  • Companies should state whether they believe they will be able to continue in operation and meet their liabilities taking account of their current position and principal risks, and specify the period covered by this statement and why they consider it appropriate. It is expected that the period assessed will be significantly longer than 12 months; and
  • Companies should monitor their risk management and internal control systems and, at least annually, carry out a review of their effectiveness, and report on that review in the annual report.
  • Companies can choose where to put the risk and viability disclosures. If placed in the Strategic Report, directors will be covered by the “safe harbour” provisions in the Companies Act 2006.*

Remuneration

  • Greater emphasis to be placed on ensuring that remuneration policies are designed with the long-term success of the company in mind, and that the lead responsibility for doing so rests with the remuneration committee; and
  • Companies should put in place arrangements that will enable them to recover or withhold variable pay when appropriate to do so, and should consider appropriate vesting and holding periods for deferred remuneration.

Shareholder engagement

  • Companies should explain when publishing general meeting results how they intend to engage with shareholders when a significant percentage of them have voted against any resolution.

Other issues

The FRC has also highlighted the importance of the board’s role in establishing the ‘tone from the top’ of the company in terms of its culture and values. The directors should lead by example in order to encourage good behaviours throughout the organisation.

In addition the FRC has emphasised that key to the effective functioning of any board is a dialogue which is both constructive and challenging. One of the ways in which such debate can be encouraged is through having sufficient diversity on the board, including gender and race. Nevertheless, diverse board composition in these respects is not on its own a guarantee. Diversity can be just as much about difference of approach and experience. The FRC is considering this as part of a review of board succession planning and will consider the need to consult on these issues for the next update to the Code in 2016.

Conclusion

The great value of the UK Corporate Code, with its ‘comply or explain’ regime, as opposed to legislation, is that it can be quickly and easily modified to reflect current Corporate Governance thinking and address shareholder concerns in a relatively short time-scale.

The fact that Bankers bonuses are still making the headlines six years after the Banking crisis which plunged the world into recession, illustrates the need for this timely reinforcement by the FRC of the basic requirements for company directors to consider the long-term implications of their actions on the sustainability of the business and to always act in the best interests of the business – as set out in the 2006 Companies Act.

Categories
Opinion

Exactly what should directors do?

For the first time in law, the 2006 UK Companies Act sets out what a company directors duties are

The 2006 Companies Act, which set out to streamline and simplify UK Company law, ended up being one of the largest pieces of legislation ever written!

However, it did, for the first time, specify exactly what a Company Director’s duties are (which apply equally to both Executive and Non-Executive Directors), as follows:

  1. To act within powers
  2. To promote the success of the company
  3. To exercise independent judgement
  4. To exercise reasonable care, skill and diligence
  5. To avoid conflicts of interest
  6. Not to accept benefits from third parties
  7. To declare interest in proposed transaction or arrangement with the company

To take them one by one – To act within powers – how does a director know what powers he or she is required to act within?

A good place to start is the Articles of Association (previously known as the Memorandum and Articles or ‘Mem and Arts’) – when was the last time you looked at these? When did your board last review them to make sure that they are still appropriate? These, together with any shareholder agreements, contracts,covenants and other items form the company’s constitutional documents which define your powers as a director.

If you haven’t looked at these for a while, or worse still, have never looked at them, then ask your Company Secretary for copies as soon as possible.

Next – To promote the success of the company – prior to the 2006 Act it used to be the case that company directors were responsible to shareholders and providing they endeavoured to ensure a decent return on the shareholders investment then they were complying with their duties.

Following the ‘unacceptable face of capitalism’ scandals of Lonrho and Slater Walker in the 1970s and the corporate failures of the ’80s leading to the Cadbury Report and the UK Corporate Governance Code it became clear that company directors had much wider duties which are now enshrined in the 2006 Companies Act, especially in respect of promoting the success of the company.

To promote the success of the company – having regard (amongst other matters) to:

  • The likely consequences of any decision in the long term;
  • The interests of the company’s employees;
  • The need to foster the company’s business relationships with suppliers, customers and others;
  • The impact of the company’s operations on the community and the environment;
  • The desirability of the company maintaining a reputation for high standards of business conduct; and
  • The need to act fairly as between the members of the company

Clearly, the new act, which applies equally to Executive and Non-Executive company directors in the UK, establishes a legal duty for directors to avoid short-termism in their strategic decision making and take into account the legitimate interests of their staff, suppliers, customers, the community and the environment as well as their shareholders.

With regard to the need To exercise independent judgement – it is important that, regardless of job title or board role or independence, all directors come to the boardroom table as equals, with joint and several liability for thedecisions that they make and that they are not unduly swayed or influenced in making those decisions.

All directors are expected To exercise reasonable care, skill and diligence– which means that they should devote sufficient time to their role (which limits the number of directorships any individual may hold) and come to every board meeting well prepared, having read all the board papers and where possible, having had off-line conversations with fellow directors about key strategic matters.

Turning up to board meetings late and trying to read the papers during the meeting for the first time is unlikely to lead to an effective contribution to decision making or a satisfactory discharge of your duties as a company director.

Holding more than one board position or running your own business whilst serving on the board of another company are likely to compromise your legal dutyTo avoid conflicts of interest – whilst it is not always possible to avoid conflicts of interest, you should be aware of the possibility and alert the board when conflicts are likely to occur.

A well run board will have a Register of Interests, which will be reviewed annually, containing a list of all directors’ outside interests. The standing agenda for each board meeting should include an item for Declarations of Interests, at which point directors should declare if they have an interest in an agenda item. Often, if this is the case, the director will formally leave the meeting whilst the matter is being discussed and will only re-join once a decision has been made.

All directors should be aware of the requirement Not to accept benefits from third parties – compliance with this aspect of the act can be demonstrated by maintaining a Gifts and Hospitality register and ensuring that there is a company-wide policy on entertainment paid for by third parties.

Finally, directors need to comply with the requirement To declare interest in proposed transaction or arrangement with the company – most commonly this covers property transactions or contracts with businesses that a director has an interest in. The sphere of interests that need to be declared also usually includes the director’s spouse, children and immediate family.

If you are a company director and you have been aware of your duties under the 2006 Companies Act and you have been complying with them then you can be satisfied that you are acting within the law – if not, then you should review how you and your board operates to make sure that you are discharging your director’s duties correctly.

Categories
Opinion

Is your board dysfunctional?

Does your board have directors who trust each other, are committed, are comfortable with conflict, hold each other to account and are focused on results?

If not, your board is likely to have some degree of dysfunctionality and is possibly in need of an intervention.

I have been working with boards of organisations of all sizes in all sectors for a number of years and most of them exhibit some degree of dysfunctionality,

I use a board evaluation and diagnostic tool based on the book by Patrick Lencioni, The Five Dysfunctions of a Team, to discover the level of dysfunctionality within a board.

The foremost dysfunctionality is; Lack of Trust – if there is no trust on the board, directors will:

  • Conceal their weaknesses and mistakes from one another.
  • Hesitate to ask for help or provide constructive feedback.
  • Hesitate to offer help outside their own areas of responsibilities.
  • Jump to conclusions about the intentions and aptitudes of others without attempting to clarify them.
  • Fail to recognise and tap into one another’s skills and experiences.
  • Waste time and energy managing their behaviours for effect.
  • Hold grudges.
  • Focus time and energy on politics, not important issues.
  • Dread meetings and find reasons to avoid spending time together.

The next dysfunctionality is; Fear of Conflict, The symptoms of this dysfunctionality in boards is that they will have boring meetings, create environments where back-channel politics and personal attacks thrive and ignore controversial topics that are critical to board success. They will also fail to tap into all the opinions and perspectives of board members and waste time and energy on posturing and interpersonal risk management.

The third dysfunctionality is where a board Fails to Commit to being a Team – this results in:

  • Ambiguity among the board about direction and priorities.
  • Missed opportunities due to excessive analysis and unnecessary delay.
  • A lack of confidence and fear of failure.
  • Revisiting discussions and decisions again and again.
  • Second-guessing among directors.

Dysfunctional boards are unable to create clarity around their direction and priorities and cannot align directors around common objectives. They move forward with hesitation and are unable to learn from mistakes.

Fourth, a board that Avoids Accountability:

  • Creates resentment among directors who have different standards of performance.
  • Encourages mediocrity.
  • Misses deadlines and key deliverables.
  • Places an undue burden on the Chair as the sole source of discipline.
  • Does not ensure poor performers feel the pressure to improve.
  • Does not identify potential problems quickly by questioning each other’s approaches without hesitation.

Finally, if a board is not Focused on Results, the organisation will stagnate or fail to grow, rarely defeat competitors, lose achievement-oriented employees, be easily distracted and encourage individualistic behaviour where board members focus on their own careers and individual goals.

So what should boards be doing?

Directors who can agree with most of the following are likely to be sitting on more effective boards:

  • Board members are clear on what is expected of them.
  • Board meeting agendas are well planned so that the board is able to get through all necessary board business.
  • Most board members come to meetings prepared.
  • Written reports to the board are received well in advance of meetings.
  • All directors participate in important board discussions.
  • Different points of view are encouraged and discussed.
  • All directors support the decisions reached.
  • The board has a plan for the further development of directors.
  • Board meetings are always interesting and frequently fun.

How many of the above statements are you able to agree with? Is your board dysfunctional?

If you disagree with a number of them, the likelihood is that you are a member of a dysfunctional board … and If your business has a dysfunctional board, it is also likely to be a dysfunctional business.

Categories
NHS Non-Executive Opinion

What makes a good NHS Non-Executive Director?

The Francis and Keogh reports highlight the need for good governance and effective Non-Executive Directors in the NHS

Both Francis and Keogh reports have highlighted the crucial role played by Non-executive directors in the NHS.

Questions about standards of nursing care, above average mortality rates and low staff morale are continually being asked by the media – increasingly turning the spotlight on the governance of the NHS.

Patients, carers, doctors, nurses and managers are concerned and anxious about the level of care they can either expect to receive or that they are able to deliver. The Care Quality Commission, the body which is supposed to provide an independent assessment of quality in NHS trusts, has been discredited over its failure to spot departures from acceptable standards of care in several high-profile cases and there is a degree of confusion in other regulatory bodies as they struggle to find their way in the newly transformed NHS.

NHS staff, already feeling the pressure of having to deliver more services and reduce costs, are now having to deal with the added burden of having to reassure patients and carers that theirs is not a failing trust.

NHS Non-Executive Directors are the eyes and ears of the outsider with privileged access to the inside of the Hospital, Mental Health or Community Health services upon whose board they sit. Together with the Governors (in a Foundation Trust) or the Staff Council (in a Social Enterprise) they are responsible for ensuring that the trust is governed effectively.

Speaking on Quality governance the Keogh report says:

“Too often our reviews found quality issues of which the board were unaware. whilst many boards could point to improvements in quality governance processes (e.g. undertaking walkabouts in the hospitals), review teams were concerned that boards could too easily accept the assurances they were receiving and were not really listening to contradictory evidence or seeking more robust assurance. in some cases, the non-executive directors and chairs of the trusts were not providing appropriate critical challenge to the management team.”

One of the recommended actions from the report is that:

Monitor and the NHS Trust Development Authority should consider the support, development and training needed for Non-Executive Directors and Community, Patient and Lay Governors to help them in their role bringing a powerful patient voice to Boards.

So what makes a good NHS Non-Executive director?

Critical qualities

  • NHS Non-Executive Directors must have a clear understanding of their role and how they can most effectively serve their trust.
  • They must ensure the trust is governed properly: that it complies with the right laws and regulations, that its strategies are robust, its business plans achieved and that stakeholder and patient interests are protected.
  • Non-Executive Directors must be independent minded, have integrity and gain the respect of other board members. Despite their personal liability, they need to step back from the detail (having satisfied themselves that there is a robust management, information flow and performance management structure in place at executive level) and be prepared to look at the trust’s business from a “big picture” perspective.
  • Time is an important factor. Most advertisements for NHS Non-Executive Director vacancies talk of a commitment of two to three days a month – the reality is often double that number. Especially now, with the spotlight on NHS governance, Non-Executive Directors should be prepared to spend enough time on the job to ensure that they are effective and well informed on the key issues faced by the trust.
  • Non-Executives also need the ability to wade through papers and other statistics and elicit the knowledge they need to perform their role effectively without being overwhelmed by detail. In fact, detail is often the enemy of the Non-Executive Director.
  • Chemistry with fellow board members is also vital. That does not mean bending over backwards so everyone gets along but rather conducting themselves in a mature and professional manner and being prepared to monitor the activities of the trust and challenge the performance of the organisation and its executive.
  • Non-Executive Directors should keep in touch with fellow Non-Executive Directors to share best practice between meetings, as well as immerse themselves in the trust’s business in the early days, asking lots of questions before forming opinions.
  • Assertive judgements or challenges based on ignorance or misinformation will not enhance the image of a Non-Executive Director and only damage their credibility.
  • In terms of the board and particularly the executive team, the role of a Non-Executive Director is to offer advice, challenge and apply sound governance. The challenge is to do that as part of the team rather than appear as someone standing outside and criticising without an appreciation of the tough job the executive team has to do. The executive team must also be open and keen to take on board advice from Non-Executive Directors.
  • The best Non-Executive Directors are those with strong influencing skills, good powers of judgement, insight and vision, and good listening skills. It is also important to be committed and enthusiastic about the trust and to inspire confidence. Showing that you are level headed will help boost credibility and respect.
  • Good training is important in developing Non-Executive Directors – there should be a training programme in place together with personal development plans. This will help to identify each board member’s particular skills, how they can be used and developed and which skills are missing across the board.

Assuming you have all of the above critical qualities how do you then make sure that you are an effective member of the board?

The keyword is assurance – how do you know that what is being said at board meetings is the whole picture?

You need to triangulate the information you are receiving from a number of sources to give you a feeling of how the trust is performing – much of this triangulation happens outside the boardroom, which is why being a Non-Executive Director is so much more than just attending board meetings or reading the board pack.

As an NHS Non-Executive Director you should make it your business to visit every area of the organisation – hospital wards, clinics, departments and anywhere that services are delivered. Try to visit at different times of day and night and on different days of the week – especially at weekends. Introduce yourself to the staff on arrival and then, quietly and unobtrusively, observe what is happening. You may think this is impossible: that managers will resent you and feel undermined, that staff will behave differently because you are there, that you ought not to disturb patients. Remind yourself, when you need to, that your role is different from the managers’, because you are not compelled to take action. You have a right and a responsibility to use your eyes and ears: sit or stand quietly to one side, for only a few minutes and you will be surprised at how quickly people forget you are there.

When you do so, you will see for yourself the welcome patients receive; whether they can see the name of the person dealing with them; whether and how staff introduce themselves. You will see if you can tell from the uniforms who is who, and what their role is. You can look for the written information for patients that is available to staff on the wards; you can see the quality of the physical environment and feel the atmosphere.

Introduce yourself to patients and relatives – find out if they know who is in charge of their care and how they can contact that person should they need to. Talk to the staff – find out what they think of their area of work and of the hospital. What do they like and what frustrates them? What would they like to change and why, and what do they feel they can do about it?

Make sure that the trust executives are aware of and supportive of these visits. If you find that you are a member of a board which is uncomfortable with Non-Executives talking to staff, patients and carers then raise this as an important board matter. It is impossible for you to effectively discharge your duties as a director if you are not encouraged to find out about the culture of the organisation at first-hand.

For the most part, what makes a good NHS Non-Executive Director is pretty much the same as what makes any Non-Executive Director effective. The difference is that the NHS has the power to dramatically effect people’s lives much more than probably any other organisation in the country.

What makes a good NHS Non-Executive Director is the realisation that along with your fellow board members you are responsible for ensuring that the trust delivers the highest standards of patient care.

Categories
Non-Executive Director Opinion

How to write a Non-Executive Director CV

A Non-Executive Director CV is different from an Executive CV

Non-Executive DirectorThe skill-set required to be a successful Non-Executive Director is different from an Executive Director’s skill-set so it makes sense that your Non-Executive Director CV should be different from one you would use to obtain an Executive position.

A summary of the skills needed to become an effective Non-Executive Director can be found here. Your NED CV will need to demonstrate that you have these skills by drawing examples from your current and previous executive and non-executive roles.

Because of this need to provide more evidence about how you match up to the NED skills criteria there is some acceptance that the usual requirement for a strict 2 page CV can be relaxed and that a NED CV can be between 2 and 4 pages long. This is not universally accepted though and some recruiters will still demand a full chronological executive type CV with a 2-page limit.

Your NED CV should contain the following:

  1. Your contact details on the 1st page with your address, email and phone numbers. It is a good idea to have your e-mail and telephone number in the header or footer of the CV continuation pages.
    You should have a LinkedIn profile and provide the address with your other contact details. It is important to make sure that your LinkedIn profile and your CV are consistent with each other – there should be nothing in your CV that is not in your profile and visa versa. The level of detail does not have to be the same though and your CV should be the more concise of the two.
  2. A candidate profile, summarising the key skills, or useful experience you have to offer to a Board as a Non-Executive Director or Chair. This should be less than 6 points and not more than 8 and should highlight areas of your experience which demonstrate that you have the required skills.
    Recruiters will be looking for a mixture of NED boardroom skills such as ‘Strategic Evaluation’ or ‘Risk Management’ and some personal areas of expertise that a particular organisation may require for its Board such as ‘expertise in digital marketing’, ‘strong IT product development track-record’, ’10 years’ experience of luxury goods sector’, ‘Finance Director experienced in VC/EIS fundraising’, ‘NED with IPO and AIM-listed company experience’, ‘Experience of Chairing PE backed companies’.
    The candidate profile is probably the most likely part of your CV that you will want to tailor when applying for a particular role.
  3. Your current and previous Board-level experience as an actual Chair, or Executive or Non-Executive Director. You can also include here any experience you may have had acting as a board-level consultant, Company Secretary, Trustee or Governor.
    In particular, you should mention any formal Board subcommittees, such as Audit, Finance, Remuneration, Nominations or Governance that you have either Chaired or were a member of.
    If your role was not as a Companies House registered director you will need to explain the nature of the Board and how the experience you gained in the role is relevant to being a Non-Executive Director.
    You should also mention here any qualifications you may have such as Chartered Director from the Institute of Directors or the Financial Times NED diploma. If you have attended a course or workshop such as the Excellencia How to become a Non-Executive Director course. to prepare yourself for the role that is also worth mentioning.
  4. A complete and accurate career record with dates and a description of your major achievements and responsibilities in your more important roles. Minor/brief/early roles can simply be mentioned without descriptions. Career breaks are not a problem so do not try to hide them. The career record should not only say what you have done but also back up the skills and expertise you claimed in the first section. Again make sure everything is truthful and accurate.
  5. A summary of your relevant professional, educational and technical qualifications, especially any that would be relevant for a particular Board appointment or Board subcommittee – such as an accounting qualification for an Audit Committee.

Format

You will often be asked to provide a CV in word format, if you are given the opportunity to provide one as a pdf, then take it as it ensures that your CV will be formatted and print out exactly as you intend it to be

Summary

As with all job applications there are no hard and fast rules covering the format and content of your CV. Try to see your CV with the eyes of someone who is wanting to make a Non-Executive Director appointment – think about what they are looking for and whether your CV has demonstrated that you have the knowledge, skills, background and experience to be an effective NED.

Categories
Non-Executive Director Training

How to become a Non-Executive Director – Bristol 20 May 2014

Are you thinking of becoming a Non-Executive Director as part of a Portfolio Career or to develop your boardroom skills prior to taking up an executive director role?

How to become a Non-Executive Director

Join us on Tuesday, May 20 2014 to find out how you can become a Non-Executive Director.

“Excellent course giving a clear picture of the role, the skills and characteristics required, the range of NED opportunities and the various routes to secure such positions. As a bonus you also meet interesting people and useful contacts. A good career investment.”

Mark Lambert, Non-Executive Director

The How to become a Non-Executive Director course helps you to plan and prepare for your first NED position. It instils a real sense of what is expected of NEDs, and how you can meet the challenge.

This one-day interactive course is aimed at aspiring NEDs and covers essential knowledge about roles, responsibilities, strategy and corporate governance that are key foundations for a Non-Executive board role. It also considers up to date thinking on corporate governance and the responsibilities of owners, the board and employees.

This is followed by practical sessions on identifying NED opportunities, the process of obtaining a first appointment and performing due diligence before any position is accepted. There is emphasis on the importance of presenting your experiences with clarity and relevance.

This course identifies the various ways and circumstances in which non-executive directors can make an effective contribution to a board’s work. It also examines methods for their selection and reviews their motivation, induction and reward.

Who should attend?
Individuals who are currently a non-executive director; those seeking appointment as a non-executive director and those looking to appoint a non-executive director.

What to expect?

  • Clarifies how and why non-executive directors can strengthen a board
  • Provides practical guidance on how best to secure an appointment as a non-executive director

Course objectives
Participation on this course will provide you with the knowledge to:

  • Clarify the board’s role, purpose and key tasks
  • Appreciate the contributions that non-executive directors can make to the board in different types of company and situations
  • Recognise the qualities and experience needed to fulfil a non-executive director appointment
  • Appreciate appropriate methods for finding, selecting, appointing and rewarding non-executive directors
  • Understand the preparation required to interview for or be interviewed for the post of non-executive director

Course Leader: David Doughty CDir FIoD

David Doughty - Chartered DirectorThe course is delivered by David Doughty, a Chartered Director and highly experienced Non-Executive, Chief Executive, Chair, Entrepreneur and Business Mentor. David has extensive executive and non-executive experience in small and medium enterprises in private and public sectors. He is also a board level consultant to multi-national organisations and a Chartered Director Ambassador for the Institute of Directors. See his LinkedIn profile here: (http://uk.linkedin.com/in/daviddoughty)

Key Details
Duration: 1 day
Location:

Orchard Street Business Centre Bristol
14 Orchard Street
Bristol BS1 5EH 

Price

£330.00 (ex VAT)

Early Bird Discount Price
£300.00 (ex VAT)

Book Now
To see course dates and to book your place now follow this link:
Course Registration
The fee includes lunch, refreshments and a copy of the course handbook

Attendance counts as 6 CPD hours of structured learning