On a Board? Don’t be crooked, don’t be lazy!

While separate legal jurisdictions have different corporate legislation and regulators, the responsibilities of a Board member are generally similar. These similarities not only apply to their legal responsibilities but also to the way they operate. Successful Boards work with due care and diligence, meet their legal obligations, and work towards the benefit of the shareholders.

The most important action of any Board is to appoint the senior management, and in particular the CEO. The choice of the CEO will reflect the strategic direction the Board has chosen to benefit the shareholders, and the choice of the person will reflect the type of culture the Board wishes to develop in the company. Indeed, the next most important act for any Board is the removal of the CEO if that is in the best interests of the shareholders.

The follow up to that of course, is the way the Board develops succession planning policies, specifically relating to the CEO. I believe that once a CEO has been appointed and proved to be the right choice (or not!) how the Board acts to ensure that the CEO has senior management support and identifiable successors is going to be critical in the long-term success of the company. Granted the Board’s role should NOT be the appointment of these other senior managers, for that is correctly the role of the CEO. However the Board can identify traits, support the CEO in his or her fulfillment of senior positions, and keep in touch with the performance of those appointed.

The third important action of a successful Board is the way they support the CEO and senior managers take the responsibility of establishing strategic plans to define strategic direction, and prepare business plans consistent with that direction. Once again this is the responsibility of senior management, not the Board. However their support is active, and not passive, in that they should be taking part in discussions, often ex-Board room, about strategic direction with the CEO, keeping informed about strategic developments and providing guidance, and ultimately signing off on strategic plans. This needs to be interactive so that difficult questions are asked, debated and answered, to arrive at a robust plan going forward.

If those are the three most important actions of a Board then what are the legal duties of Directors?

Different jurisdictions obviously have different legislation, however more often than not Directors have the same types of duties:-

* The duty to “act in good faith in the interests of the company and for a proper purpose”;
* The duty to use their powers for a proper purpose;
* The duty to avoid actual and potential conflicts of interest; and
* The duty to discharge certain trust liabilities.

These above duties include the need to act for the interests of the company as a whole and not for personal gain or for a particular constituency; the need to disclose conflicts of interest whether actual or perceived; the need not to misuse information or the position for personal gain or self-interest; and the need to use reasonable care and diligence in affairs of judgment.

These duties tend to fall into two overarching dictums:-

* Directors need to act with loyalty and good faith
* Directors need to exercise care, diligence and skill

Or, you can sum up by saying “Don’t be crooked and don’t be lazy”!

So, over to you – what’s been your experience about being on a Board?

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