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Non-executive Directors - Useful Guide To Duties And Responsibilities

Non-executive Directors - Useful Guide To Duties And Responsibilities

There has been, at least in the past, a misconception in the business community that non-executive directors are somehow subject to less stringent duties of care to the companies that they are involved with.  That is simply not the case.  Any non-exec still labouring under that false belief could be heading for trouble.

Of course, breach of director’s duties (executive and non-execs alike) has far reaching consequences – such as the threat of director disqualification proceedings and personal liability for misfeasance.

But now, help is at hand.

The Institute of Chartered Secretaries and Administrators Guide, published in January 2013, is a very useful tool for those considering a non-exec appointment and for those already engaged in that role.  The Guide suggests ways in which non-execs can approach their work which would enable them to demonstrate to a regulator or a court (where the role of non-execs is under increasing scrutiny) that they had taken appropriate steps to exercise care, skill and diligence in the execution or their roles and responsibilities.

The Guide notes that whilst non-execs cannot be expected to have the same detailed knowledge and experience of a company’s affairs as executive directors due to the time invested in fulfilling the role, in determining whether a non-exec has breached his or her duty to exercise reasonable care, skill and diligence, a court will consider the steps which ought to have been taken by a reasonably diligent non-exec to familiarise themselves with the company’s business and operations. 

The Guide provides a number of recommendations for best practice both prior to joining a board and on appointment to a board.  It is essential reading for all existing and potential non-execs.

Here are some key examples from the Guide:

  • Exercise judgment to become satisfied on the culture, values and behaviours associated with the board. 
  • Understand that your role is to provide independence, oversight and constructive challenge to the board
  • Ensure you receive a schedule of future board and committee meetings planned well in advance so that you have the opportunity to attend.
  • Insist on receiving high-quality information regarding the company’s affairs which is clear, comprehensive and up-to-date sufficiently in advance of meetings.
  • Speak to the executive directors, or if necessary, the company’s professional advisers, over any concerns but take independent professional advice at the company’s expense if you consider that necessary to discharge your responsibilities. 
  • Ensure you make all decisions objectively in the interests of the company and that your independent judgment is not affected upon any reliance on income received from the appointment.
  • Understand that circumstances may arise which require you to consider resigning from the board and take independent advice where necessary.

We have a wealth of experience in advising board members and directors in fulfilment of their duties and responsibilities. If you would like to discuss any of the issues surrounding these duties and responsibilities please get in touch.

Rachael Gibson
Associate

LChalmers