MT EXPERT: 10 things every new director should know

By on September 3, 2013

New to the boardroom? Worried you don’t know your Articles of Association from your elbow? The Institute of Directors’ Dr Roger Barker explains…

Where to begin?

As a guide, a combination of an induction pack, presentations from key managers, discussions with the chairman/company secretary, meetings with other directors, reports from external analysts and site visits should give you a balanced and real-life overview.

Articles of Association

That’s a good starting point. What they contain depends when the company was incorporated.  Aside from its name (which you will probably have already grasped) , the  Articles of Association are the company’s ‘mini-constitution’ and regulate the internal affairs of the company – director powers, classes of shares, decision-making by shareholders, etc. They can only be changed with the permission of the shareholders and you will need to work within their parameters.

Purpose 

Every company exists for a reason. Of course, it’s partly about generating a profit – unless a company can generate revenues in excess of its costs, it will not survive. But for most successful companies, making money is the consequence of success rather than its ultimate purpose. What is that purpose, and why are we the ones to fulfill it?

Business model and strategic objectives

Every company needs a viable roadmap that makes practical sense. If you can’t make sense of it, then probably you are not alone.

Issues absorbing the board’s time

There may be sensitive issues, which people are reluctant to discuss. You need to put on your detective hat and find out what they are.

Other directors

Have a chat with the chairman. Find out a bit about the style of the board, how issues are dealt with in/outside the boardroom and perhaps a bit about fellow directors – personalities, special strengths, experience. Forewarned is forearmed.

Your role

The chairman should also give you her/his opinion about how you will help balance the board: those will be the insights that could help plan for that first debate/discussion, when your tongue appears to be riveted to the roof of your mouth.

Don’t forget that as a director you have a duty to form an independent view, and from time to time you may need to express that in a forceful manner. But every board has a different style – there is not one way to run a successful board, and you should respect that.

Board responsibilities

Some major issues may need shareholder approval. Other matters may be delegated to company management or boardroom committees. You might also ask about the company’s policy for obtaining independent legal advice, as well as other orders/policies/procedures.

How the business spends its money?

Look at trends: scrutinise the annual report and accounts for the last three years (or longer) to get a clear understanding of trends in the company’s revenues, costs, profit margins, assets, liabilities etc.  Most importantly, assess if there are any danger of the company running out of cash in the near future (something that would bring your role as a director of the company to a premature conclusion).

Attitude to risk

Find out about the company’s risk management strategy, and appetite, plus any risks you may be about to be exposed to. Ask whether the company is indemnifying you against legal risks and if they have purchased directors & officers’ insurance for you.

Key drivers of success or failure

Watch these like a hawk. Find out about large contracts, customer relations, staff satisfaction/feedback, major suppliers, majority shareholders and the shareholder relations policy.

And finally…there’s rarely such thing as a stupid question – now or ever.  Groupthink is a dangerous mindset for any board to fall into.

How much do you know already? Take the test: www.iod.com/knowledge. If you want further support, consider getting trained. There are specialist director-level courses that will help you in all areas of your new job.

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