Non-executive directors of companies can and often do add real value to businesses. They are there to give an independent perspective, using their particular skills, experience, and knowledge. They have a prime role in appointing (and removing) board members. They must also operate within a framework of prudent and effective controls, which enable risks to be assessed and managed.
That is the theory. What of the practice?
Events at the Cooperative Bank may yet be another example of what can go horribly wrong for Board Members. We are told that the regulator approved the appointment of Paul Flowers as Chairman, despite his limited banking experience. But what did the non-executive directors think? What due diligence was done and what discussions took place? Or was the appointment rubber-stamped because of the regulator’s approval?
The facts have yet to emerge, but, whatever happened, there is an important point.
Decisions taken by Boards are judged with hindsight. They therefore need to be discussed openly, thought through properly and minuted appropriately. If there are concerns, remaining silent is rarely a sensible option. A director is not
on the Board to look foolish and they can be personally liable if they do not exercise due care and attention. Explaining inaction with hindsight is not easy.
The ability of a non-executive director to make a difference on a Board often depends on their ability to say what they really think when they have concerns. The manner in which they do so is a separate matter.
When we advise individuals on their non-executive appointments, some key questions we ask as part of their due diligence are:
- How will you be able to contribute as a Board member?
- How does the Board operate?
- Are there people on the Board or involved in the business who seem to have a disproportionate influence over decisions?’’
This is particularly important where there are people from different cultural backgrounds who may not appreciate the finer points of the legal responsibilities of a director.
It must surely be better to walk away with your reputation intact than tarnished if the answers are unclear. It must be equally as bad to engage in ‘group thinking’ that you may later have cause to regret.
Employment Solicitor
Julian Roskill