Being a Director and IOD Governance Principles
Dear Colleagues
It was great to see you last week. There were a couple of moments within the meeting when it felt that it would be helpful for us to have a shared view of what being a director meant.
So I hope that the attached document is useful and interesting. It comes from the Institute of Directors (IOD) and I wonder whether we might want to consider becoming members.
I’d highlight the following bits from the document
- There are 9 principles of governance to that apply to all unlisted companies and a further 5 for larger or more complex unlisted companies
These are voluntary but aimed at getting a good result for all unlisted companies
- There are some interesting notes about the role of Non-Executive directors and the balance of the board make up
I rather like the quote in the executive summary about the impact of behaviour in the board room with the introduction of non-executive independent directors :)
- And 7 legal duties of a director that I have copied here into the body of this email
At the base of this email I have also pasted a couple of links to facts sheets in the IOD site for further information
Seven legal duties of a director (Companies Act 2006)
UK company law defines a number of general legal duties for directors of UK companies. For more information on the duties relevant to private companies and to view the list of the key legal duties of a director, please refer to the following guide: Corporate governance guidance and principles for unlisted companies in the UK
1. The duty to act within powers
Directors must act in accordance with the company‘s constitution (ie the articles of association and resolutions of general meetings), and only exercise powers for the purposes for which they are conferred.
2. The duty to promote the success of the company
Directors must act in a way which they consider, in good faith, will promote the success of the company for the benefit of its members (shareholders) as a whole, having regard to:
a) the likely consequences of any decision in the long term
b) the interests of the company‘s employees
c) the need to foster the company‘s business relationships with suppliers, customers and others
d) the impact of the company‘s operations on the community and the environment
e) the desirability of the company maintaining a reputation for high standards of business conduct
f) the need to act fairly as between members of the company
3. The duty to exercise independent judgment
Each director must exercise independent judgment in his or her decision making
4. The duty to exercise reasonable care, skill and diligence
Directors must exercise reasonable care, skill and diligence in their duties. The meaning of “reasonable care, skill and diligence” is judged according to what may reasonably be expected of a person carrying out the functions of director of that company. It is also judged according to the general knowledge, skill and experience of the individual director.
5. The duty to avoid conflicts of interest
Directors must avoid situations in which they could have a direct or indirect interest that conflicts with the interests of the company. This applies in particular to the exploitation of any property, information or opportunity (regardless of whether the company could take advantage of that property, information or opportunity). However, this duty is not infringed if the matter has been authorised by the board.
6. The duty not to accept benefits from third parties
Directors must not accept benefits from third parties unless the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.
7. The duty to declare an interest in a proposed transaction or arrangement
If a director has a personal interest, direct or indirect, in a proposed transaction or arrangement with the company, he or she must declare the nature and extent of that interest to the other directors before the transaction or arrangement takes place”.