A friend of mine came into our local hostelry, positive glowing, pruning themselves like the proverbial Peacock. When I asked what has brought on this new “sheen” they told me “I’ve just been made a Director” I didn’t have the heart to ask if they knew what it actually meant – but I’ll share it with you:
Being a Director is something that very easy to do in these days of “instant” Company formation.
For a surprising number of first-time directors, they have no idea what it is that they have signed up to, and their accountant didn’t make it clear when they set up the NewCompany Ltd.
For those new Directors that have been promoted from within a Company, the obligations were never explained during the promotion process, so again it comes as a real surprise.
Here are the 1st four in a series of eight of the most common things that aren’t talked about:
1: Your liabilities
As a Director, you have a number of legally binding duties, and if you are just starting up in your own brand-new company, you need to know what they are, as set out in the Companies Act:
There are seven key duties, which are as follows…
- To act within powers granted in accordance with the company’s constitution and to use those powers only for the purposes for which they were conferred
- To promote the success of the company for the benefit of its members
- To exercise independent judgement
- To exercise reasonable care, skill and diligence
- To avoid conflicts of interest
- Not to accept benefits from third parties
- To declare an interest in a proposed transaction or arrangement
2: It’s your job to ensure the Company has long term goals.
New Directors that have either come from the sole trader route, or are promoted from within and fail to realise that they should leave the task-planning that achieves short-term objectives to others.
In their former life, as managers, people are usually incentivised to focus on implementing a process and measuring its efficiency; they were most concerned with the profitability of their day-to-day actions.
Their new role is far more important. Directors, on the other hand, focus on creating value for organisations, customers and stakeholders in the longer term.
Creating that long-term value requires an in depth understanding of value chains, of changing customer behaviours and the changing competitive landscape that goes well beyond the current service level or product performance of today. Think “Amazon”. How might that affect your business in the years to come?
3: Understanding what makes (you) a good director
Directors need to lead, and that means having the workforce look up to you in a way that makes them want to follow you.
For some directors the biggest thing in their life was having the word ‘director’ on their name badge and it turned them into arrogant playground bullies. They don’t tell to last very long.
You can oversee an order book the size of the national debt, but, unless you have a genuine understanding of a broad range of skills that that a modern director needs (such as: strategic planning, risk management, financial understanding to knowing how to exercise good corporate governance), it will be tough for you to fully comply with your duties.
As a leader, you need the gravitas to inspire confidence in people who are looking to you for that leadership, and you need to display and demonstrate high morals, values and ethics because that will earn respect and trust from your staff. If you can take it to the next level and publish them as part of your Company Culture you staff will adopt them too.
4: Are you able to ‘do the numbers’?
If you don’t measure it, you can’t track it’s performace.
The numbers are a vital measure of Company performance, and when understood, they are a clear early warning pointer to what is going well, and more importantly to where problems are brewing. You need to understand how to use finance to make better decisions and ask the right questions of your Managers for the business going forward.
Remember: as a director, you have a responsibility for the finances of the business even if your are not the Financial Director.
Keep an eye out for the second 4 things that you weren’t told – they’ll be here soon.