The Role of Non-Executive Directors

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Posted in:Corporate and Commercial|February 19, 2013 | Join the mailing list

Last month the Institute of Chartered Secretaries and Administrators (ICSA) issued new guidance on the liability of non-executive directors, accompanied by a comment from ICSA’s policy director, Seamus Gillen stating "becoming a director
confers many privileges – of power, influence and status".  But the position also carries great responsibilities.  No director wants to make the kind of mistake that sees them lose their house, or their reputation, or even worse, legal action.  This new guidance
directly addresses a question we are often asked "What do we need to do to stay out of jail?".  The guidance highlights the gravity of the role of a non-executive director.

The new guidance has been divided into two parts: the first dealing with steps to be taken before joining a board, and the second being what a non-executive director should ensure takes place upon appointment.

Prior to joining a board a non-executive director should:

• undertake their own due diligence of the company to ensure it is one they have confidence in and is a company where they can bring added value;
• understand that more is expected from a director with specific skills or expertise, accordingly time should be spent developing and refreshing those skills;
• understand the values and culture of the board and company to ensure that upon appointment they can uphold said values;
• review the letter of appointment and raise concerns prior to signing.  The letter should include the minimum time commitment that will be expected to fulfil the role; and
• in accordance with the duties listed in the Companies Act 2006 state any conflicts of interest that are or may come into existence.

Upon appointment a non-executive director should:

• receive a fully comprehensive induction programme having personal input into their training by taking responsibility for their own continuous training.  This is to include being up to date on relevant company, sector and legal developments;
• understand that their role is to provide independence, oversight and a constructive challenge to the board;
• receive a schedule of future board minutes so that they have the opportunity to attend.  A non-executive director should also ensure that they are provided with high-quality information prior to any meeting;
• ensure that all decisions are made objectively in the interests of the company and appreciate that circumstances may arise where it is appropriate to resign from the board; and
• speak to the company’s executives at any time over any concerns they have and seek independent professional advice at the company’s expense when it is considered necessary.

What the guidance has shown is that a higher demand has been put on non-executive directors to ensure that they are capable at demonstrating to a court or regulator that they have undertaken the appropriate steps to exercise care, skill and
diligence in their role on a board.

Should you have any concerns regarding a current directorship, or seek guidance and advice in relation to a potential role as a non-executive director please contact Stephen Foster, Head of Corporate at
stephenf@berg.co.uk or by telephoning 0161 833 9211.

The information and opinions contained in this article are not intended to be comprehensive or to provide legal advice. No responsibility for article’s accuracy or correctness is assumed by Berg or any of its
partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of the contents of this article.

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