We run various seminars and training events -these will be published on the training and development page. Here you will find board related and busines news up dates. We also provide a regular update of today's international business news.
For thoughts and ideas read our blog on http://lesliespiers.wordpress.com
“World class boards requires world class people no matter the size of the business”
writes Leslie Spiers, Director of Boardroom Dynamics Limited
The 2006 Companies Act is the longest and most complex piece of legislation passed by Parliament, or indeed, by any Parliament in the world. At 1,300 sections and 16 schedules it flies in the face of the government’s attempt to reduce red tape, but there is a positive, in that it consolidates and simplifies earlier legislation!
The Act is better organised than its predecessors and now sets out with clarity what the board should be doing in an explicit fashion rather than by implication, as was the case previously. Some of the nonsense and absurdities have been rationalised. For example, in England a person of any age at present can be a director but without special resolution a director had to resign at 70 years of age. The 2006 Act has now changed that situation in that there is a minimum age of 16 before anyone may become a director and the maximum age limit has been deleted from the statute.
The role of directors is clearly defined in the new model Articles, Table A, that is effective from October 2008. The clause states “The directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company”. This effectively protects directors and the company from interference from shareholders in the day-to-day management of the company. If, however, members do not like the way the board operates they are of course free to vote them out of office or can change the articles to limit director’s powers.
So just who is a director? The 2006 Act is clear and reflects earlier legislation. If it looks like an elephant, smells like an elephant and acts like an elephant then it is an elephant! That thinking applies to directors. The Act defines directors as “any person occupying the position of director, by whatever name called”. It is therefore the role performed, not the title given, that is the determinant, so if you attend board meetings, act as a director would do in the normal course of events – then you are a director whether or not you have signed Form 288a!
Companies will normally have a number of Executive Directors who are employees of the company, but increasingly, even quite small businesses are looking towards Non Executive Directors (NED) who usually have letters of appointment rather than contracts of employment and hence are paid fees rather than a salary. There is however conflicting advice as to the status of NED contracts in terms of employment law. The role of the NED is different to that of the Executive Director but there is no legal distinction between executive and non-executive directors and the responsibilities placed upon them are the same. The implications of this are far reaching in both the recruitment of NED’s and in ensuring that, as part-time members of the board, they are fully conversant with the business and are adept at recognising risk across a range of areas.
The notion of the NED arriving for the monthly board meeting, enjoying the Salmon Sandwiches and Earl Grey and then vanishing for 28 days is not an option in today’s complex business environment. The NED is required to offer independent advice and indeed, in larger companies, as a consequence of The Higgs Report, the Combined Code states that board structure should include a balance of executive and NED’s “so that no individual or small group can dominate the board’s decision making”.
The appointment of directors should, as The Combined Code states, be “a formal, rigorous and transparent procedure”. Building Better Boards, published by the DTI identifies specific qualities and skills that need to be ascertained before an individual becomes a director and the more objective the measurement of those qualities the better. Technical skills identified include knowledge of corporate strategy and development, awareness of regulatory and corporate governance requirements and the principles of financial management. This knowledge also needs to balanced with personal traits such as integrity, leadership qualities, strategic perception, analytical skills, commitment and flexibility as well as a high level interpersonal and communication skill.
A poor or inappropriate appointment to the board has potential to create disaster and, as such, rigorous screening and testing is a vital part of the selection process. Objective testing and assessment is now commonly used in large and small businesses to assess both the technical skills and the all-important personal qualities needed of a director. This objectivity removes, to a great degree, the vagaries of the standard interview and the potential for “horns and halo” and personal bias to over-influence the ultimate choice.
Given the role of the board is, in broad terms, fourfold it is essential that directors are knowledgeable regarding Policy Formulation, Accountability, Strategic Thinking and Supervisory Management. Although the Code is concerned with listed companies, the notions of Best Practice advocated by the Code are being adopted by small and even micro businesses.
Seven key issues face every board. These are:
1 The purpose of the organisation and why it exists
2 What the company will accept and what it will not condone – its values
3 How to achieve success through its strategy and management of risk
4 Assessing the performance of its activities through key indicators
5 Developing accountability and communication with stakeholders
6 Adding value through innovation, questioning and challenging
7 Developing key relationships and protecting the company reputation
Add on, induction training, ongoing evaluation, board recruitment and diversity and a commitment to continuing professional development as further hallmarks of world-class boards and its not difficult to see that the option to ignore best practice is simply not available to those businesses wishing to grow earnings and fulfil their potential.
Leslie Spiers
lspiers@boardroom-dynamics.co.uk
If you have any views on this please do email us and let us know your thoughts
Leslie