The legal responsibilities and requirements of company directors are essentially laid out in the Corporations Act 2001 (Cth) (or, for incorporated associations, within each state and territory’s incorporated association legislation). The ASX Corporate Governance Principles and Recommendations (2010); and the Standard Australia Good Governance Principles (AS 8000-2003; 2003) provide further guidance as to modern, best-practice approaches for boards and board members to become effective and high-performing.
Beyond these legal requirements, the role of board member is broad and varied. A lot of time is spent not on pure ‘governance’ activities; but rather on a range of performance and conformance activities, taking both an inward and outward perspective (to borrow from Tricker’s model).
From my experience, these fall across eight main areas. Below I share a quick overview of each of these areas, to shed a little light on the breadth of arenas that the board members are involved in.
You are expected to provide input into, set, and approve the organisation’s goals and objectives. Personally, you will be looked upon to offer input and insights from the perspective of your expertise.
The board must ensure that appropriate resources are made available to successfully achieve the strategic plan, and that progress towards the desired outcomes is being made.
CEO and Senior Management
Overseeing the succession planning, remuneration, appointment, mentoring, assessment, and dismissal of the Chief Executive Officer (or equivalent position). The board may also approve the appointment, removal, terms, conditions, and remuneration of senior executives (for example, Chief Financial Officer, Company Secretary, etc.).
Monitoring / Approval
These tasks include monitoring and approving strategy implementation, budgets, KPIs, capital expenditure, capital management, mergers, acquisitions, divestitures, organisational performance, control and accountability systems, senior management’s performance, the effectiveness of the entity’s governance practices, diversity policy, and overseeing the integrity of the entity’s accounting and corporate reporting systems, including the external audit.
Compliance activities include ensuring ongoing legal compliance, providing overview of policies and practices, and the timely and balanced disclosure of all necessary information concerning the entity to shareholders and stakeholders.
Ensuring risks are identified, assessed, and managed, and that necessary policies are created to mitigate risks falls under this category of board and director duties. Risk management also involves ensuring that the entity has in place an appropriate risk management framework, setting the risk appetite within which the board expects management to operate, and reviewing the entity’s risk management framework at least annually to satisfy itself that it continues to be effective.
Communications / Networking
Directors are tasked with liaising with key stakeholders and shareholders, comply with its continuous disclosure obligations, and design and implement an investor / stakeholder relations program to facilitate effective two-way communication with investors / stakeholders (if deemed necessary). In not-for-profits (NFPs) and charities, board members are usually charged with assisting the organisation’s fundraising activities and government and business relations.
Culture / Ethics
Boards must articulate and foster appropriate corporate culture, and develop a code of conduct for its directors, senior executives and employees to ensure an honest and ethical workplace. They must also implement methods to monitor and measure corporate culture in the boardroom and across the organisation.
Board Performance and Structure
Being self-managed, the board must adopt a structure to facilitate effective governance processes, and for each director to contribute effectively; oversee director remuneration; appoint the Chair and Deputy Chair; periodically evaluate the performance of the board, its committees and individual directors; develop the board charter; develop and implement recruitment, induction and continuing professional development programs for directors; and manage director conflicts of interest.
As you can see, the role of a company director is quite broad, and involves a lot of critical activities for the organisation. The role of a director varies only in a matter of degrees across different organisation types; and all directors must approach their board duties with their legal duties in mind: to act in good faith; to not gain advantage by improper use of their position; not to misuse information; to act with care and diligence in the performance of these duties, and not to trade while insolvent.
From your experience, what would you add to this list?
For more tips on being an effective company director, check out this post.