WHAT REALLY IS YOUR ROLE AS THE DIRECTOR OF A COMPANY?
In my experience working with the Boards of companies of different sizes, I find that a lot of people appointed to serve on the Boards of companies do not understand the responsibilities and liabilities that come with the role of Director. Serving on the Board of a company is often considered a great accomplishment and a lot of times you may be tempted to get carried away by the benefits (status, allowances etc.) that come with the position. Though these are welcome, it is also important for you to remember that “great power comes with great responsibility” and as such make sure that you invest the time to understand what is expected of you.
Upon the appointment of the average individual as director in a company, they might have a vague idea about their duty to the company. They may understand the need to be available for meetings and the responsibility to protect information they receive but only a few fully grasp the entire scope of the role and liability they are accepting when they agree to serve on the Board.
Although this is not an exhaustive compilation of all the roles of a director, I seek to provide a a good foundation that you can build upon. For as they say, proper comprehension precedes right action. When a director understands his or her responsibility to the Company and the liability that comes with same, it would become easier to make appropriate demands from Management in relation to information and accountability. The Board of Directors is not a place to serve as a “yes man” to the whims and caprices of Management but to act as that check ensuring that the Company is run properly in line with its objectives.
Who is a Director?
The Office of Director in a company is one that is created by statute. In Nigeria the statute in question is the Companies and Allied Matters Act, 2020 (CAMA).
CAMA states that:
- a Director of a company is a person duly appointed by the company to direct and manage the business of the company.
- Unless the Articles of Association of the Company (one of the Company’s constitutional documents) provides otherwise, the Board of Directors are empowered to exercise all powers of the Company which by law are not to be carried out by its shareholders.
From the above we see that Directors are very powerful. Directors sign agreements on behalf of the Company and can create obligations for the Company to third parties. It is important to note that while the Board of Directors is jointly liable for wrongful actions to the Company, each director is individually responsible for the actions of the board in which he or she participated; and absence from the board’s deliberations, unless justified does not relieve a director of this responsibility.
There are generally two types of directors — executive and non-executive.
By the Nigerian Code of Corporate Governance (NCCG), Executive Directors are responsible for supporting the Managing Director in the operations and management of the Company. Working with the Managing Director they ensure that the Company’s strategic imperatives are implemented and that its finances are well managed. Non-executive Directors on the other hand are responsible for contributing to the development of the Company’s strategy. They are individuals chosen because of their knowledge, expertise and independent judgment and it is expected that they bring all these to bear when reviewing Management’s performance and advising on appropriate strategy for the Company. To ensure a greater level of objectivity for non-executive directors in carrying out their responsibilities, the NCCG specifies that Independent Non-Executive Directors (who are free of relationships or circumstances which could impair their ability to make independent judgements) should be appointed to bring a strong independent voice to the Board.
Though the function of the two types of director may differ, their responsibility to the Company is the same as defined by the CAMA, industry specific regulation and the Company’s governance documents. For the sake of this article, I would only share the responsibilities stated in CAMA and anticipate that you would go ahead to ask your Company Secretary to provide you with any additional information from industry specific regulation and the company’s governance documents (Articles of Association, Board Charter and Code of Ethics/Conduct).
Roles of A Director Under CAMA (Section 302–305)
1. Duty to always act in good faith and in the best interest of the Company
As a Director you are to ensure that your actions are always for the good of the Company. This should mean that at every time you take a decision or cast a vote, your topmost concern must be whether that decision will benefit the Company. Even where a decision may be to your detriment, the law expects that when making your contributions to the Board, you only render advice that will be advantageous to the Company.
2. Duty to be diligent and to exercise proper care and skill in carrying out responsibilities
The CAMA provides that Directors must be diligent in their responsibilities. As a Director you are expected to attend meetings of the Board and shareholders. Prior to these meetings, you would receive reports from the Management team on a wide range of matters including important projects, financial performance and potential financing which are to be considered at meetings. To be a diligent Director, it is not sufficient to just attend meetings; you need to take time to review the reports and come up with valuable observations and comments to guide the Management team.
3. Duty to inform the Company about any interest in its shares or in the shares of its subsidiaries/ holding company
If you have acquired any interest in the shares of the Company or in a subsidiary of the Company, it is your duty to inform the Company Secretary. This is because CAMA requires the Company Secretary to keep a register of Directors’ interests in shares.
4. Duty to promptly disclose any interests the director has in any transaction or proposed transaction with the Company
If are interested in any transaction the Company is entering into, it is your duty to inform the Board so that you can be excused from participating in the decision on the contract.
5. Duty to retain his obligation to the Company even when he delegates his authority to another entity
Even when you have to appoint someone to assist you in carrying out your responsibilities, it is important to ensure that the person implements it in the interest of the Company. This means that it is your responsibility to supervise such a person’s use of the authority you have given on behalf of the Company. informing the person appointed of their duties including the duty to maintain confidentiality.
Other Attributes Needed by Non-executive Directors
There are also certain additional skills and attributes you would need to demonstrate in your journey as a Director:
1. Commitment — As a Non-executive Director, you probably work or run your own business as well as other family commitments, it is therefore important for you to ensure that you are ready to give the commitment it takes to serve. You would need to review proposals and attend meetings a lot of times on short notice which would often test or stretch you, it is therefore important that you believe in the vision of the Company so that you can sustain the commitment required to fulfill your role.
2.Objectivity — Particularly for Non-executive Directors, you would be expected to offer your best independent and objective opinion to all issues presented to the board. A Director is required to take a stand when, in his or her mind, the company’s long term future is not being prioritised, no matter what the consequences.
3.Strategic Thinking — In making recommendations to Management, Non-Executive Directors are to be focused on the long-term strategy of the Company. This means that you should not only consider short term gains, you must also provide guidance that will lead to the long-term prosperity of the Company. In doing this, you would need to extend your sights to the future and assess the long-term consequences of each decision being made.
4. Analytical Thinking — Problem solving and analytical thinking are very important skills for Directors. It is important for you to be able to review complex information presented, identify the real problem and thereafter propose the best solution possible that will be in the long-term interest of the Company.
5. Company knowledge — It is important that a Director understand the history of the Company that he or she is serving. To aid you in gaining the necessary knowledge, I recommend you ask the Company Secretary for any relevant documents, visit the Company’s office and interact with staff so that you can gain a feel of the Company culture.
6. Industry expertise — Understanding of the industry in which your Company plays is very key for your success as a Director. Therefore ensure you take the time to read up on key players in the industry (within and outside the country you operate in), the industry environment and factors that will make for success. This would greatly enrich the advice that you give to your Board.
7. Financial knowledge — As a Director, you will be called upon to review the financial performance of the company, projects and proposals, it is therefore important for you to have financial skills. You should be able to understand and interpret financial statements. Also invest in acquiring knowledge that will help you conduct financial analysis and understand the financial implications required in any decision. This would aid you in making relevant contributions when such discussions are raised.
In conclusion I would say that it is great to receive that email offering you a seat on the Board of a company, and I heartily congratulate you for the achievement, in recognition of the value you have to offer. I recommend that you bring your A-game on board and contribute your quota to the development of the Company.
I hope my thoughts shared here help you on your journey.
LIST OF REFERENCES
- Companies and Allied Matters Act, https://www.cac.gov.ng/wp-content/uploads/2020/12/CAMA-NOTE-BOOK-FULL-VERSION.pdf
2. Nigerian Code of Corporate Governance, https://nambnigeria.org/Nig_Code_of_Corp._Governance_2018.pdf
3. Duties of Director , a Deloitte publication https://www2.deloitte.com/content/dam/Deloitte/za/Documents/governance-risk-compliance/ZA_DutiesOfDirectors2013_16042014.pdf
