Are you stepping up to become a director? Or have you been one for a while? Here’s a heads-up for the new kids on the block and a refresher for veterans.
So, we’ll assume you know the basics already – acting in the company’s best interests, promoting its success, preparing and filing accounts on time, etc. And you probably also understand that you’re not allowed to bribe anyone, fix prices, commit fraud, jeopardise the safety of your staff or keep trading if you can’t pay creditors.
And, you’ve probably also read that you could be fined, barred from being a director or even face jail if you get it wrong. Yes, jail. (But is it actually going to happen??)
So how do you make sure you’re on the right side of the law? What do your duties really mean in practice? And what can you do to avoid problems?
Well, here are 6 quick tips to help you get your house in order and reduce risk:
- The basics – Know what your company’s constitutional documents say and manage upwards effectively. They regulate your internal workings and tell you the process for running board meetings and reporting to investors/ shareholders. They also set out any limits on your ability to run the company. Investors/ shareholders like to be kept in the loop. They don’t love being asked for forgiveness after you’ve hired that super expensive superstar head of sales, particularly when it turns out s/he’s not so hot and the termination package is a biggie…
- Be proactive – Understand your role within the company and get to grips with the laws that apply to you and your industry sector. (GDPR anyone?) You can delegate, but don’t assume they can be left to get on with it. If you have doubts, ask questions. If someone needs support or isn’t or can’t do their job, deal with it. Don’t wait for the s**t to hit the fan.
- Regular meetings – Hold regular board/management meetings and reviews. Ensure minutes are taken and reviewed. Insist on regular financial reports and projections and review them against budget. Make sure each board member knows his/her responsibilities and that there aren’t any gaps.
- Keep others in the loop – Even though you’re ultimately responsible, ensure your staff understand your duties so the right information gets reported up the chain. Keen young things are all well and good but you need to keep an eye on them so they don’t get you into trouble.
- Check your insurance – Not just the usual (employer and public liability, PI, office equipment and contents, etc.) but also have a good D&O (directors’ and officers) policy. And consider key(wo)man insurance too…
- Don’t sit on your hands and assume it’s someone else’s problem – If you’re not happy with the way things are going, call a meeting to discuss your concerns. It’s important that you voice your opinions – and also that they are recorded in case decisions are scrutinised later (well, we are lawyers). You may even want to take your own advice. You saw what happened to Eduardo Saverin in the Social Network right…?
So there we have it. Your practical tips on being an effective and law-abiding director. Good luck!