Being a company director could be regarded as a high risk occupation, given the duties and responsibilities that come with the role. Non-compliance of those responsibilities could land you (as a director) in court - potentially putting your own assets, including your home, car and savings, at risk.
A claim doesn’t even have to reach court for you to find yourself out of pocket. Where a regulator or a body such as the Health & Safety Executive or HM Revenue & Customs suspects a failing within a company, it can launch an investigation incurring you large costs.
As well as the financial risks, directors also face significant reputational damage. Being found in breach of your duties can put you at risk of being disqualified from holding the position of director. Disqualification can prevent you from being involved in setting up, running or marketing a company, for up to 15 years. Tougher stances from the regulators mean that the risk of investigation and fines is on the up. As an example, in 2013, fines from the FCA totalled £474m – more than 50% higher than the £312m its predecessor the FSA handed out the previous year.
It doesn’t matter whether the company is a global corporate or an SME, you will have extensive duties and potential liabilities. So, if you’re thinking of joining a board, or if you’re already on one, it's important that you have a clear understanding of what is expected of you. Here are some basic tips to prepare yourself as a director of a company:
Research: Familiarise yourself as much as possible with the company’s financials, culture, reputation, and personnel, and the regulatory environment under which the business operates.
Structure: Understand the structure of the board and the shareholders. In larger companies, review the board charter and corporate governance policies, and the board protocols and procedures. In smaller companies, make sure there is some form of structure, and that appropriate operational processes are in place.
Strategy: Look at the business plan and board minutes. Be clear on strategic direction and risk appetite.
Seek Counsel: Be sure to avoid becoming a De facto or shadow Director without a proper policy or procedure in place. Seeking expert advice is critical when you are a director.
As new opportunities for growth present themselves, companies and their senior executives need the confidence to make complex business decisions without the fear of financial and reputational repercussions. As well as being required to be among the best in your field, by holding the position of director you must also understand the risks that apply to you and the duties and responsibilities placed upon you.
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