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The Effective Director

‘When you join a board, you outsource your reputation to the company’
Jeremy Small

In RPC’s Female Insurance Group (FIG) webinar, The Effective Director, on Tuesday 13 October, Jeremy Small, Company Secretary of mutual insurance provider, Royal London, set out what it really means to be a company director.

In the hour-long event, hosted by Head of CLL, Rebecca Cater, Jeremy examined the role of the board member from four key perspectives and illustrated his points with quotes from some great writers and thinkers.

Perspective 1: Company law and directors’ duties are serious

A company is a discrete legal entity, separate from its directors and shareholders. However, because decisions about its conduct are made my directors, these people must:

  • Act within their powers;
  • Promote the success of the company;
  • Exercise independent judgment;
  • Exercise reasonable care, skill and diligence;
  • Avoid conflicts of interest;
  • Not accept benefits from third parties; and
  • Declare interests in proposed or existing transactions or arrangements with the company.

The application of these duties covers every aspect of a director’s conduct. There are some 130 ways to fall foul of these obligations and end up being fined, or even imprisoned. And these exclude sector-specific regulations such as those that apply in the financial services industry. So, while a company’s liability may be Ltd, a director’s is anything but.

As a director, your duties are to the company, not its shareholders, your fellow directors or any other organisation. Similarly, you can take any amount of advice from experts but the legal responsibility for decisions rests on directors alone.

‘Expectation is the root of all heartache’ William Shakespeare

Perspective 2: Board papers are hazardous materials

Papers circulated among directors are necessarily brief because they’re invariably distilled down from vast amounts of data, insights, reports and personal experiences. This means people are also selective about what goes in – and what gets left out – of those documents. As a director, consider whether you should probe for further data or evidence to support the claims and assertions being put to you. Is there enough information for a board to base a good decision on? Are any comparisons in the papers valid? Does what’s written down back up what you’re being told by expert advisers and your co-directors? Is it even clear?

Don’t be afraid to ask basic questions. If you’re confused, the chances are others in the group are as well. And where someone is asking your board to commit or invest money in their proposal, ask them if they’d put their own cash into it.

‘Healthy scepticism is the basis of all accurate observation’ Arthur Conan Doyle

Perspective 3: Groupthink and cognitive bias are behaviours to be challenged

This underlines the value of scepticism and the importance of asking (often awkward) questions. A big problem in board meetings is groupthink, where one idea or person becomes dominant and everyone around the table simply goes with the flow. Groupthink takes hold where people are afraid to be outliers, where they perhaps lack the courage to speak out or where laziness creeps in over time. So again, be prepared to ask questions, find out which facts or pieces of evidence are not on the table and follow your gut instincts.

Remember, once a decision is made, the board you’re a member of is legally responsible for it.

Another behavioural trap in meetings is cognitive bias, our natural tendency to interpret what we see and hear to fit our own view of the world. When cognitive bias is in play, what we take out of a conversation is what sits in the tiny intersection between the objective facts being presented and those that confirm our beliefs. We can miss so much, which is why it’s vital to consciously counter this thought pattern.

‘People generally see what they look for, and hear what they listen for’ Harper Lee

Perspective 4: When you join a board, you outsource your reputation to the company

As a director, your personal reputation is bound strongly to that of the company you represent. So before accepting the offer of a directorship, talk to the Company Secretary, former directors and the company’s auditors to get a feel for its culture. Then ask yourself how much you can trust your prospective fellow directors. Approach the question from two directions:

  • Cognitive: what do you know about the board and what experiences or dealings have you had with them? and;
  • Emotional: do you like them, and do you believe them?

You’ll obviously need to trust your own instincts here, too!

Finally, a brief word on governance, a subject that is often under the spotlight when things go wrong. Many thought pieces have been written about governance, yet almost all of them are variations on a simple theme: governance is about who has the authority to do what and, once done, who they have to tell.

‘To learn who rules over you, simply find out who you are not allowed to criticise’ Voltaire

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