So You Want To Be A Company Director

So You Want To Be A Company Director

Warren Tapp

Smashwords Edition

Copyright © 2011 Warren Tapp

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher.

The information, views, opinions and visuals expressed in this publication are solely those of the author(s) and do not reflect those of the publisher. The publisher disclaims any liabilities or responsibilities whatsoever for any damages, libel or liabilities arising directly or indirectly from the contents of this publication.

Title: So You Want To Be A Company Director

ISBN: 978-1-742840-46-8 (pbk.)

Published by Book Pal

www.bookpal.com.au

DISCLAIMER: Although every care has been taken to ensure the correctness of information and opinions provided in this book the author must specifically disclaim any responsibility for any errors, mistakes or incorrect facts or interpretations which may occur, however caused, and accept no liability on any basis. Comments and recommendations in this book are not to be construed in any way whatsoever as legal advice. Readers should seek their own professional advice before acting on any advice or opinion in this book.

About the Author

Warren has had extensive experience over many years both as a Company Director and as a consultant to Boards in Australia and overseas. He has been a Director of over two dozen companies in the last 30 years and at one stage was the Non Executive Chairman of seven Boards in Australia and overseas. For more than 10 years he facilitated modules on the Company Directors Course for the Australian Institute of Company Directors and has been a keynote speaker at many conferences in relation to Corporate Governance and the role of the Board. His qualifications include an MBA as well as a Master of Laws and a Graduate Diploma in Applied Corporate Governance. He has also completed the Advanced Company Directors Course and a number of short courses conducted by the AICD. He is a Fellow of the Australian Institute of Company Directors. Now semi retired, Warren is still a Non Executive Director while completing further post graduate studies. He lives on the Gold Coast in Queensland.

Introduction

For some years I’ve been meaning to write a book like this but have only now found the time to put pen to paper. I saw a need for a book like this as I can’t count the number of people that have asked me over the years how they can become a member of a Board and what is actually involved. I thought it might be useful to help those many people who are considering joining their first Board or who may already be a Director without really understanding what they should be doing.

While there are hundreds of books available on Corporate Governance, they are often a text book with complex legal or accounting matters explained, but no book in simple terms that helps someone understand the fundamentals of being on a Board of Directors, or a sharing of knowledge and experience about the life of a Director. So you want to be a Company Director? I hope this book gives you some insights into what it involves for you.

Contents

Why Do It?

Getting on Boards

Induction

Corporate Structures

Legal Matters

Finances

Risk Management

Strategy

The CEO

The Chairman

Director Dynamics

Board Papers

Committees

Board Meetings

Board Performance

Professional Development

Family Companies

Not For Profits

Getting Off

Why We Need You

Chapter 1: Why Do It?

If you’ve never been a company Director before and you’re considering joining a Board, then you should ask yourself why do it? There are lots of reasons why people join Boards and that may answer the question for you. For example, you’ve been approached by a company which is looking to fill a vacancy on their Board and they’ve asked you to consider taking up that appointment. It may be that you have been asked to represent a significant investor in the company to be their nominee Director in the company in which they have invested. It may be that the family owned business now wishes to appoint new Directors who may be family members or may be independent Directors themselves.

Of course it may be that you’ve decided that at this stage in your career it would be interesting to join a Board quite apart from your current full time work role or it may be that you are looking to develop a portfolio of positions with the aim of becoming a full time professional Director. What ever the reasons, you need to think seriously about why you would want to do it. Some people have a false view that it is a well paid position that only involves a meeting once a month, if that. I know of others that have accepted Board appointments because they felt there was some prestige attached and it would look good on their CV. Others have joined a not for profit Board because they really wanted to do something worthwhile in the community. Some younger people have joined the family company Board because Dad has told them they don’t have any choice!

In my view, there is only one reason you should do it and that is that you believe you have the skills to do it and that you can make a real contribution to that company and its shareholders. You really have to enjoy the role of a Director so that you have a passion for it. It is further seen that there is some kind of invisible club that these people belong to and nobody else could join. No doubt that was just a perception people had which probably wasn’t true. However there is no doubt that the role of a Company Director has changed enormously from those days up to today.

The high profile corporate collapses of the ‘90s and the noughties has resulted in the major reforms to the Corporations Law and the subsequent responsibilities of company Directors and the expectations of people in that role. When I see the difficult times that some Directors have had to cope with over the years and the increasing risk of liability, one has to wonder why anybody would want to do it.

We read annual reports that talk about Chairman of major Australian public listed companies earnings hundreds of thousands of dollars a year in fees. However we don’t very often hear about the Directors with the same level of responsibility working very hard for small to medium companies for annual fees that probably equate to less than $20 an hour! If you happen to be also appointed as Chairman of a Board, you’ll find you will need to contribute many more hours because of the unique responsibilities of that role. This is quite on top of the fact that sometimes it’s quite like herding cats!

So how much time is involved? Well that depends on the type of company and how big it is and what’s happening to it at this point in time. The amount of time involved would be a lot less if you are a Director of a small private company that is reasonably well established and not facing any major issues. There is a lot more time involved if you are a Director of a major publically listed company involved in takeovers or the significant corporate problems requiring more of the Board’s attention. In my experience, Directors for not for profit Boards are often asked to be a lot more hands on and help with such things as fundraising and marketing over and above their Corporate Governance responsibilities.

For a typical company, a Director can expect to attend a Board meeting each month which will last for at least half a day, if not longer. On top of that, they will be expected to participate in an annual budget planning session as well as an annual strategic planning session and any other special Board meetings or other events. If the Board has committees, you can expect to be on at least one of those which will involve three or four other meetings a year, quite apart from your main Board meeting. On top of that, you may be expected to attend a large number of company functions throughout the year and perhaps travel to various sites around the country where the company has its operations.

All of this is quite apart from reading the monthly Board papers and quite often a large volume of other material that is provided to you throughout the year relevant to your company. Then of course there is the annual general meeting each year which can be an interesting event depending on the shareholder makeup. If you are also the Chairman, you will need to communicate with the CEO on a very regular basis by phone or email, as well as spending time with individual members of the Board to discuss issues between Board meetings and also be an ex officio member of all Board committees. You will also, as Chairman, liaise with the company secretary on a regular basis in relation to the agenda and minutes for Board meetings and any flying minutes (circulating resolutions).

Apart from all of this, you will probably be also expected to keep your professional knowledge up to date by attending various courses or conferences and reading material regarding matters related to the trade or industry in which the company operates as well as Corporate Governance developments or changes.

Depending on the Board’s policy in relation to conflicts of interest, you may also be required to disclose details of all of your personal assets on a Register of Interests while at the same time knowing that those same assets potentially could be at risk as a result of any liability based on your actions as a Director.

So you can see you will earn your fees if you are doing your job properly. Now you might say, well I can probably get away with not spending very much time in this role and the CEO and Chairman will pick up any problems I miss if I don’t attend meetings or read all the material provided. That is a very dangerous attitude and we will see later when we discuss legal matters that you’re exposing yourself to a high level of risk. Apart from that, high performing Boards will not appreciate a Director who does not pull their weight and contribute. It’s not hard for a good Chairman to organise for the shareholders to not only appoint you but also disappoint you if you don’t contribute.

I admire very much those willing people who volunteer their time as a member of not for profit Boards or committees as they make a real difference to our community. However depending on your corporate structure as a not for profit, you will find that you may have the same responsibilities and liabilities of a Director of a major public company. So we can see that fees may range from zero for a volunteer Director, up to hundreds of thousands of dollars for a Chairman of a major publicly listed company. Generally speaking, a Non Executive Director for most median sized companies can expect to be paid somewhere between $25,000 and $50,000 a year in monthly instalments. A Chairman generally will receive between 1.5 and two times that fee because of the extra workload. Fees will vary depending on the size of the company by turnover and staff numbers, as well as the industry sector and whether it is privately owned or government owned.

If you’ve been invited to join a Board, you will usually be told the fees that you will be paid. Meanwhile, you need to do your own research to try and establish what to expect in the way of fees, depending on the variables I’ve mentioned already. In Australia there are a number of Board consulting firms who provide advice in relation to remuneration for Non Executive Directors and one or two of them conduct annual surveys and provide a report on fee levels which you can purchase.

Some of the well known headhunting firms also have a reasonable idea of Director’s fees based on their experience of filling Board appointments. Of course if you know any experienced company Directors, you can ask them to share their knowledge of the current level of fees, but keep in mind they will vary depending on the industry and size of the business. On top of fees, you should also expect the company to pay the premium for Directors and Officers Liability Insurance for all Board members including yourself. There is usually no problem being reimbursed for any out of pocket expenses in the conduct of your role on behalf of the company, as long as it’s been approved by the Chairman, if that is their policy.

So what is expected of you as a company Director? It’s expected that you will attend all Board meetings, not miss any because of other commitments. Obviously illness is a reasonable excuse, but other conflicting demands on your time should not be allowed to get in your way of attendance at Board meetings or any other Board activities. Good Boards will usually work out the calendar for the whole year ahead so that you have the dates to put in your diary to avoid any conflict of time in the future.

You’ll also be expected to read all of the Board papers and any other material you’re provided with throughout the year so that you understand fully all aspects of the company activities. Depending on what the company is doing at the time, this can be a lot