Are you fit to be a Company Director
Individuals acting as company directors in 2011 are more aware than ever of the precarious nature of the role, given that many small to medium sized companies in particular are finding trading difficult. We at O’KellySutton Accountants are continually being asked to advise directors on best practice for good corporate governance. Corporate governance is relevant to directors of all companies. It is the term given to the way in which directors perform their duties in running the company. Smaller companies will not normally find it necessary to have as formalised an approach to corporate governance as a large company may require. In recent times, there is greater expectation with regard to the level of compliance of directors of all companies. Directors are well advised, therefore, to give careful consideration to the steps that they are taking to ensure that they are complying with company legislation.
The powers and duties of directors are set out in the various Companies Acts and clarified by case law. Matters specific to the company are set out in its Memorandum and Articles of Association. In addition, the Director of Corporate Enforcement has published a booklet setting out the principal powers and duties of Company Directors under the Companies Acts.
Directors duties are laid out in company law and are referred to as statutory duties. And under common law directors have a duty of care and fiduciary duties. Fiduciary duty is a duty to act honestly in the interests of the company and is more onerous than a duty of care. In addition the Company Law Review Group has identified seven specific duties of directors that have arisen out of case law over time and which they recommend be set out in statute. The duties identified are • Duty of loyalty • Duty of obedience to the company constitution • Duty of avoidance of secret profits • Duty of independence of judgement • Duty to avoid conflicts of interest • Duties of care, skill and diligence • Duty to consider the interests of third parties.
Who has the director a responsibility to?
Directors should understand their principal responsibilities are to the corporate stakeholders and creditors. Directors are acting on the stakeholders behalf. Directors cannot put their own self interest ahead of the company.
What is considered good practice?
- First and foremost you need to fully understand the rules of being a director. Read and research,there is lots of excellent reports available. You need to ensure you have sufficient time to dedicate to the position prior to accepting an appointment. If you are unsure of what is involved consult an experienced commercial accountant or corporate lawyer.
- On appointment get to understand the company and its history. Interview existing and retiring directors, company solicitors, and company auditors. Carry out research, review press releases,news reports, review historical financial statements, board minutes, organization charts and examinein particular the most recent set of management accounts for liquidity issues. Review cashflows,budgets and business plans. Review bank files. Review court records for judgements or pendingcourt cases.
- Acting as a director you should ensure:
- Convene and attend regular directors meetings.
- Properly document and sign off minutes of directors meetings
- Items addressed at the board meetings should include the following:
- Maintain a robust system of internal control to protect the company assets – according to the Association of Certified Fraud Examiners research, U.S. organizations lose an estimated 5 percent of annual revenues to fraud.
- Convene annual general meeting and extraordinary general meetings when required
- Continue to be fully up to speed on the company finances with annual accounts, managements accounts and budgets.
- Keep up to speed with latest developments in company law and your duties.
– Strategic and corporate planning
– Review of financial information
– Actual performance against budgeted
– Internal and External risks factors facing the business
– Investment appraisal.
– Cash position / banking
– Commercial performance and benchmark against competitors