We often see questions around the role of a Company Director, and what terms like "due diligence" and "fit and proper person" mean. It may all seem a little vague, especially considering a Director carries legal responsibilities.
So, what does the law say? In the UK, this is regulated by the Companies Act of 2006.
- act within powers, for the company and themselves. In a nutshell, Board Members must ensure the organization acts in accordance to its mission. This is often when the most nuances are, especially in areas like M&As, or acceptable levels of risk.
- promote the success of the company: interestingly, the law explicitly calls out a fairly broad number of stakeholders, and invites for long term thinking in assuring the organization is a going concern (read: financially viable). This is where Directors need to question strategies and decisions from a broad set of perspectives, and why diversity is important. Employees, customers and suppliers come into play, as do local commmunities and the environmental impact of your activities.
- exercise independent judgment: and not be seen as partial in evaluating operations
- exercise reasonable care, skill and diligence. At a minimum, you are expected to participate and be prepared - not being aware is not a reasonable excuse for a Director. If you have serious concerns, you may want them to be recorded in meeting minutes or reported to the Chair. We willwrite more around due diligence and Board meetings.
- avoid conflicts of interest. In some cases, Directors may be involved with customers, suppliers or other stakeholders of the organization, such as have a child studying at a given school. These are not completely outruled, but must be declared, as do all related party transactions.
- not to accept benefits from third parties. There is a degree of nuance here should a director not be aware of a transaction, especially if it concerns their family or other associated persons and not themselves, but you must declare or recuse yourself if you are aware. It is, however, very important that a related transaction with another person or organization close to you may generate a breach.
If you think this is as much about who you are, as what you do, you are absolutely right. And, importantly, the duties around conflicts of interest and 3rd party benefits continue to apply even after ceasing to be a director. Additional personal restrictions may apply, depending on the specific industry.
Seems daunting? Not necessarily, as long as you choose your company and industry carefully, and your motivation truly is to support the best for the organization.
As this is a brief summary, we invite you to get familiar with the actual regulations: Companies Act 2006 (legislation.gov.uk)
