Directors’ Responsibilities: Not Just a Free Lunch
A long time ago I wrote a blog on board information as a guide to our team and for people we invest in to help them design effective information packs for boards. This was intended to be one of a series of blogs on the topic of effective governance, the rest of which never got written. I have now been prompted to correct this, so here goes with round 2 of the series – what is the purpose of a board and why do we need directors in the first place?
There are two interlinked answers to this question. The first is a legal, technocratic one which is that in many legal jurisdictions including in the UK, a company has to have specified people (or companies) who formally hold authority, responsibility and to some extent liability to act on behalf of a company and to ensure that it is run in accordance with the law and with its own constitution.
This means that as a director of a company you must have a fairly decent understanding of the various laws that govern company behaviour, such as responsibility for transparency and disclosure (accounts etc.) and for the wellbeing of stakeholders (health and safety, product liability, social and environmental obligations etc.). Get this wrong and you might be banned from acting as a director, fined or even in some circumstances imprisoned.
Whilst this is a responsibility to take very, very seriously, in reality this is probably the smaller of the two roles of directors. The second, and in my eyes more significant one is that as a director you are responsible for setting the direction of the company and ensuring that the company makes progress towards its intended destination.
Each company will set its own destination and goals. In the first instance these are set out in the company’s constitutional documents – every company has an “Object” or series of Objects that set out what it exists to do. These are sometimes drafted very widely, sometimes very narrowly, but in all cases everything that directors allow or instruct the company and its employees to do have to be in line with the company’s Objects. These Objects are also the crossover between the legal framework the company operates in and the boundaries to the strategic, operational plans that the directors are responsible for creating and delivering.
The company’s strategy should be a statement of the board’s intended destination and goals, in line with its Objects, together with an assessment of how its current resources and capabilities can be used and extended to enable the destination to be reached and goals achieved. Ultimately the company’s success or otherwise in setting effective goals and destinations and achieving them is your collective responsibility as a board and your personal responsibility as a director.
So why is it important to set out this stuff? Well, in my experience, many boards don’t act as if they genuinely understand these roles and are not chaired in a way to ensure that they do them really well. In many, many companies attending a board meeting feels like a tick box exercise, an opportunity for a bit of ego massage, an excuse for a nice lunch, or a way of earning a nice sum for doing not much work once you have got bored of having a full time job and are on your way to retirement.
As a director your role is to ensure that the company, its management team and employees are optimising their performance in achieving their strategic goals in a way that complies with law and best practice. Being clear about this enables you to focus your time and energy on identifying where this is being done well so that you can encourage more of it, and spotting where things are not working so you can support management as they work through how to do them better. A management team’s time is a limited resource. Preparing for, and spending time in a board meeting is a big draw on their time. Directors, and particularly the chair, should be ensuring that every agenda, meeting, discussion and board information pack is single-mindedly focussed on identifying and enabling performance enhancement opportunities – this ultimately is your purpose. If you can have a decent lunch and massage your ego on the way, even better!