Continuing governance failures seem to point to the fact that not all boards are up to scratch when it comes to governance. Better training and development is the answer, suggests Simon Osborne, chief executive of ICSA: The Governance Institute.
Since Robert Maxwell’s fatal fall from the Lady Ghislaine in 1991 and the discrepancies in his companies’ finances revealed after his death, corporate governance has been the watchword on everyone’s lips. The Cadbury report authored by Sir Adrian Cadbury in 1992 suggested improvements to restore investor confidence in Britain’s corporate governance system following the Maxwell pension funds scandal and the collapse of both Bank of Credit and Commerce International and Polly Peck.
The UK Corporate Governance Code, which is based in large part on the Cadbury report’s recommendations, defines a set of principles of good corporate governance aimed at companies listed on the London Stock Exchange, the directors of which have certain responsibilities. Furthermore, ss170-177 of the Companies Act 2006 codify and establish in law the general duties of directors. What is clear from the continuing governance scandals and furore over remuneration is that not all directors fully understand these responsibilities and that is why all directors should be fully educated in their statutory duties or governance responsibilities.
Directors need to understand that they have primary responsibility for the good governance of the organisation of which they are a director. Transparency; accountability; legal, regulatory and compliance responsibilities are all words that should be part of a director’s mantra.
Directors should help develop strategy and determine the nature of the risks that the company is willing to take to achieve its strategic objectives. Non-executive directors (NEDs) also have responsibility for constructive challenge in the boardroom, for developing policy on executive remuneration and for fixing remuneration packages of individual directors. With shareholder revolts over excessive pay increasing year by year, clearly some directors sitting on remuneration committees are getting things wrong.,
It is vital that new and existing directors have a clear understanding of their role within a company and how they can maximise their effectiveness. Company secretaries and other governance professionals should be the first ports of call for any director joining a new company. The company secretary is the best point of contact for discussing directorial duties and responsibilities and will be responsible for ensuring that a proper induction takes place, including arranging any training that is necessary.
Directors also need to be aware of hot topics such as corporate manslaughter, business continuity, the new European General Data Protection Regulation and the Modern Slavery Act. As the legal and regulatory environment is constantly changing, professional development is a good way to ensure that directors are up to date with good practice so that they can assist their company to meet stakeholder expectations.
A thorough understanding of the board’s role in promoting and deriving value from good governance is key, as is knowledge of the relationship between governance and management. Having the right mix of people on a board is essential if a board is to operate effectively. NEDs are required to ensure that they have the requisite skills, experience, independence and knowledge of the company to be able to discharge their duties and responsibilities effectively.
The legal and regulatory context within which directors function is of paramount importance and includes their statutory duties under the Companies Act and responsibilities with regard to such issues as health and safety; anti-discrimination; the environment and data protection law.
It is a requirement of the UK Corporate Governance Code that directors regularly update and refresh their skills and knowledge. Bespoke training is an ideal solution because it can be tailored to a company’s specific needs or to an individual’s particular situation. For example, new NEDs joining a company might find it useful to learn about the specific responsibilities of their role interspersed with more general presentations that relate to the company itself as it helps them to contextualise things better.
Similarly there is sufficient time to devote to dialogue about how the organisation can respond to best practice or any specific requirements it might have. Moreover it is confidential so issues can be raised that people would not want to raise in public.
Being a director is a highly visible role and one that can lead either to an enhanced reputation or a ruined reputation, both for the individual and for the company they serve. With directors legally liable to carry the can if things go wrong, they must undertake proper training to make sure that they are fully aware of the potential liabilities attached to the role.
For information on director development, contact ICSA: The Governance Institute’s training team at training@icsa.org.uk
About ICSA:
ICSA: The Governance Institute is the professional body for governance. We have members in all sectors and are required by our Royal Charter to lead ‘effective governance and efficient administration of commerce, industry and public affairs’. With 125 years’ experience, we work with regulators and policy makers to champion high standards of governance and provide qualifications, training and guidance.
