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What it really means to be a director

With boards in the limelight at the Singapore Corporate Awards, it's a good time to put the spotlight on the joys and tribulations of directorship.

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The best course of action for directors is to always act in good faith and to exercise care and diligence. The board's role, after all, is to establish the appropriate culture, values and ethical standards of conduct at all levels of the company.

"THERE are more than 50 ways for a company director to go to jail."

Thus began the first director seminar I ever attended, in 2000. I did not think the lecturer was trying to frighten us, but he did capture my attention.

I also learnt that in 17th century England, more than half of the board of directors in one company were executed for mismanaging the affairs of their shareholders. I am inclined to think that would not happen today. Hopefully.

That seminar was a useful reminder that the life of a director is not without its risks. To start, the Companies Act prescribes fines and other penalties, and indeed incarceration, for failures to meet the standards of the profession.

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Beyond the Companies Act, the regulatory environment houses a maze of statutes and subsidiary legislation, such as the Employment Act, Bankruptcy Act, Personal Data Protection Act and Workplace Safety and Health Act that also prescribe duties, responsibilities and liabilities of directors. And then there are those industry-specific legislation, including the Banking Act, Securities and Futures Act and Insurance Act.

These may be daunting to a first-time director, and Singapore's regulators will soon mandate that new directors receive "comprehensive and tailored induction" on joining a listed board. This is to ensure that directors are fully aware of their roles and responsibilities, personal risks and mitigants, such as directors' and officers' liability insurance.

It's not just about the perils.

But to focus only on the drawbacks is to miss the point. For many directors, the pride and personal satisfaction that come from sitting on a board, together with the interactions and continual professional development, are what make a directorship experience so extraordinarily fulfilling. For others, it may be the stature and prestige of leading a company, or even the director fees and the sense of doing a job well.

Then there are those directors who have been asked to sit on the board as a favour to an acquaintance or family member, which may be the case for smaller companies and family-run enterprises.

Let us briefly remind ourselves about the roles and responsibilities of directors.

The ongoing review of the Code of Corporate Governance emphasises that having the appropriate people, processes and structures to direct and manage the business and affairs of the company enhances long-term shareholder value.

The best course of action for directors is to always act in good faith and to exercise care and diligence. The board's role, after all, is to establish the appropriate culture, values and ethical standards of conduct at all levels of the company.

Indeed, the basic tenets of good corporate governance embrace accountability, transparency and sustainability.

DIRECTOR DUTIES

The Treasurer of Australia (my country of birth) warned recently that "being a board member is not a retirement job, it's a very serious job!" He was, incidentally, recommending that jail terms might be considered for certain failed directors. But not execution, at this stage, at least.

What, then, are the duties of a director? In essence, the board decides what the company will do (strategy), appoints some people to do it (the CEO and management team), ensures that it is done safely and effectively (oversight of conformance and performance), and takes full responsibility if things do not work out. Directors can delegate many of the tasks of leadership, but they can never delegate or abrogate full accountability for the outcomes.

It involves a great deal more than just turning up to a meeting every couple of months. To be effective and able to make a serious contribution, a director must feel the pulse of the business. He or she must develop a sense of the culture, the mood, and the issues that are hindering or feeding success. And he or she needs to develop an adequate knowledge of the industry, the competitive and economic landscape, the risks of disruption and the opportunities to disrupt. And much more.

And when a crisis occurs, or a takeover looms, the non-executive part-time role can become effectively a full-time commitment, at least for a while.

CONFLICTS OF INTEREST

Perhaps, it is pertinent to point out that among the many directorship duties and governance practices, one that gets too many directors in trouble is the rule against conflicts of interest.

Put simply, a director should not benefit directly at the expense of the company in any way. A director should not allow himself or herself to get into a position where personal interest conflicts with his or her fiduciary duties to the company. Accordingly, any potential conflict must be avoided and, if not, disclosed.

Examples of conflicts of interest include using company property or assets to obtain profit for oneself, or competing with the company. While there are no rules against acting as a director of another company, directors need to use discretion in accepting positions and using information between potentially competing companies. Making improper use of information obtained by virtue of one's director position for personal gain is also considered a conflict of interest.

In today's complex operating environment, it is almost impossible to eliminate situations where there are conflicts of interest. It is important for directors to ensure that they proactively declare all potential conflicts of interest. And when they are aware of a situation that may undermine their impartiality in specific transactions, they should recuse themselves from discussions and decisions in such matters.

WHY SO MANY WANT TO BE DIRECTORS

There are many sources of fulfilment for the committed director. The satisfaction that comes from giving back, especially in the not-for-profit sector, can be enormous. The opportunity to develop a second career, and to remain engaged with the corporate sector, is exciting. The status which derives from playing a leadership role is important to many. And the networking is fabulous.

But in my opinion, the biggest benefit lies in the gratification that results from personal growth. Every day as a director can be a learning opportunity, whether it is learning from colleagues, observations, reading, conferences, or online and classroom training. It is exciting to feel that we become more knowledgeable, more confident and more effective as directors, as we progress.

It does not happen by osmosis. The will must exist; the determination to seize every learning and training opportunity. If you do not find joy in learning, and in leading and making things better, then a director's career probably is not for you.

But if you can say: "How lucky I am, to be able to contribute from a leadership position, and learn so much along the way", then I would say: "All good wishes for a wonderful directorship future!"

  • The writer is a member of the governing council of the Singapore Institute of Directors. He is also an independent director on several commercial and non-profit boards