Directors fees increased by 4.9 percent in the past 12 months according to recent survey by Strategic Pay. The main reason is that directors face risks. The Companies Act 1993 sets out the responsibilities of company director. Whether one is director of one man band or of the largest listed company in New Zealand, the legal responsibilities are the same.
Every director must ensure that he or she complies with the Companies Act, the Tax Administration Act, the Income Tax Act, the Goods and Services Tax Act, the Financial Reporting Act, the Resources Management Act, the Health and Safety in Employment Act and the Commerce Act.
Many don’t of course. Running corporate governance programmes is, in part, what I do. In my experience it is rare day when everyone in the room is aware that they need to know the location of their share register or that they need to have the minutes of all board meetings for the last seven years handy.
The maximum fine for not knowing these things is $10,000.
Few directors of smaller entities sign certificate every time they pay themselves certifying that the company will still be solvent after the payment. That attracts $5000 fine.
Most of the time these things don’t matter – so long as things are going well no one asks questions.
But times are now tough and enterprises fall over.
Liquidators then look for return to the shareholders and creditors and recently redundant employees may want to “get their own back”.
Customers, on the other hand, would prefer not to pay their bills.
Suddenly you need to know that you and the other directors have done the job and lived by the rules. You must rely on your fellow directors. Are they to be trusted to hang together like the Feltex Five or, will the team break up as in the Five Star Group? In that case two of the four directors pleaded guilty to offences and have been sentenced to imprisonment. The others are trying to prove innocence through the courts.
It is little wonder that people talk about the Old Boys Network. Is there one? Of course!
You need to trust the person sitting next to you.
Decisions made around the board room table are joint decisions. Even if you are outvoted by your fellow directors you are jointly responsible. If you don’t trust them to make good decisions then you are at risk of serious nervous health issues.
You need to know that if decision turns to custard the board will stand together and take the heat.
You need to know that one of your board members won’t suddenly pretend that they knew all along that something was wrong and blame everyone else.
So who do you trust?
Someone you have known for long time. Someone you would expect to have the same commitment to your values. Someone you knew at school or someone you have worked with on other boards.
It is brave person who takes the risks of corporate governance with stranger. Diversity is all very well but, what if the individual is so different that we can’t trust them? How do we know that they have similar values?
If you are trying to start career as professional director you must demonstrate that you are trustworthy.
You need to demonstrate that you understand the risks to which you and your fellow directors are being exposed. You need to demonstrate that you will add value around the board room table, not only through the skills you have but also because you have great networks and view things differently (and positively) and are trustworthy. You must prove that you will keep confidences and not tell everyone of your boardroom discussions.
How do you prove these things?
By being active. Get to know potential personal advocates on board. Read the trade journals so that you recognise and can talk the industry jargon. Turn up to functions where people who know people hang out. Tell people you are interested in being director and which industries interest you.
My book explains more of the strategies and success secrets to starting successful career as professional director. You need to know what you are doing to be inside the network of those asked to join board.
One day group of directors will be discussing who to appoint to replace retiring director. The conversation will cover many questions: We need someone we can trust. Someone we know. Someone who has our values. Someone we can talk to. Someone who speaks their mind but doesn’t tell all and sundry about closed door conversations.
Your name will pop up because you have demonstrated all these attributes.
And someone will say: That person understands that it is not easy being director.
Ron Scott is managing director of consulting company Stellaris. www.stellaris.co.nz
