By Florence Hope-Wudu
Directorship is an onerous responsibility to assume, little do many who do so seem to realize. The official duties associated with a directorship role can be ponderous, especially with public institutions. Directors of public companies shoulder a lot more responsibilities compared to private companies as they must familiarize themselves with extensive matters of corporate governance relating to regulatory compliance.
As the adage goes “privileges go with responsibilities,” and so comports the responsibilities and liabilities associated with a directorship. Directors’ duties are increasingly becoming even more complex with time. It is important to note that the health of every organization rests with the pedigree of the leadership afforded it. Amongst the many skills expected of a director include sound Emotional Balance, great sense of Business Awareness and Judgement, Problem-solving and Innovation and Leadership skills. These skills are needed to be able to demonstrate true direction giving. Essentially, boards are the conscience of every organizationas well as the pillar that keeps the company together.
In this article, I will explain the responsibilities of directors from the perspective of the Companies Act, 1963, (Act 179) and from the broader governance perspective based on international corporate governance principles. Also, the common dilemmas faced by directors and the challenges of directorship will be highlighted in this article for readers.
The Organisation for Economic Co-operation and Development (OECD) Principles which provide a framework for Corporate Governance states that “The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.”
The essence of good corporate governance is to strengthen the effectiveness and efficiency of leadership in all our organizations. This is because organizations are the cement that hold society together. Corporate governance should go beyond just being a mere compliance tool to one that builds on learning systems, improving human behaviours and values.
The financial sector in Ghana is in the midst of a tectonic-plate movement. The trauma caused by the collapse of two commercial banks has put directorship on the corporate governance spotlight. Further to this collapse, the Central Bank of Ghana’s call for investigations into the act of these directors sends an even stronger signal to the stewards of this sector that the usual business of directorship should change.
This call to action by the Central Bank serves as a reinforcement that directors are at the fulcrum of every entity’s governance and further to that, they are responsible for the success or failure of the company’s whose interest they represent. If management is not doing its job, then is because the board is not doing its job in the first instance.
The Companies Act, 1963, (Act 179) which serves as a primary act for all companies in Ghana provides direct minimum statutory duties for directors. Section 203 of this Act defines the boundaries of the duties of the director. The fundamental legal principle is that directors owe a fiduciary duty to their company, and by this, they are expected to act in good faith and trust on matters affecting the company. S/He is expected to demonstrate in a faithful, diligent, careful and ordinarily skillful manner that the business of the company has been conducted in a proper, legal, good-corporate-citizen style. No reason could exonerate him or her from any liabilities resulting from negligence.
Besides the fundamental duties and responsibilities of the director as stated above, directors may also be required to comply with industry related regulatory frameworks. Typically, directors of financial institutions will be bound by the mandates of the Banks and Specialized Deposit-Taking Act, BSD Act 2016, (Act 930) and even more, if listed, will have additional requirements under the Securities and Exchange Commission and the Ghana Stock Exchange listing rules. In all these regulations, one thing is clear: that boards act in a way to promote the business of the company they serve. This tells the hefty load on boards to deliver on their mandate.
Whilst this provision serves as the basics, boards must however strive to aspire to exceed the minimum legal requirements to outshine their peers.
From international leading practice perspective, a board’s governance role can be seen to involve four basic elements: Strategy Formulation, Policymaking, Supervision and Monitoring and Accountability to Shareholders.
- Boards work with top management, looking ahead in time and seeing the firm in its strategic external environment, develop strategies which are then translated into policies to guide the top management and provide plans for subsequent control.
- Policy formulation here also involves the development of governance framework, ethical and risk policies, procedures, and practices necessary to achieve strategies and improve the company structures. The board is where key corporate governance issues converge and it is important that they set the right tone at the top for the management to follow.
- Boards have a responsibility to monitor and supervise executive management. They do this by selecting, appointing, motivating, overseeing, and, where necessary, replacing the CEO. It is good practice for directors to ensure that succession plans are in place that enable a company to develop and change leadership in a progressive, planned, and non-disruptive manner.
- Finally, boards need to provide accountability to shareholders and other stakeholder by responding externally and reflecting corporate activities and performance to them.
From my empiric observations, most directors are locked into an executive mindset and are resentful to the idea of having to constantly re-train so as to become true and dynamic direction-givers.
I call this resentment director complacency. Indeed, they are too busy to devote time for training. Undoubtedly, it is through professional development that directors get to remind themselves of their emerging roles and get the opportunity to improve.
Henry Ford once said“Anyone who stops learning is old, whether at twenty, eighty. Anyone who keeps learning stays young. The greatest thing in life is to keep your mind young”.
Corporate boards today are expected to be more engaged, more knowledgeable, and more effective than in the past. Boards are expected to equip themselves with the adequate professional development to enable them to deal with today’s complex issues.
Directors are faced with many dilemmas.In pursuing their key purpose, Directors face a demanding set of dilemmas and challenges.Directors often find themselves confronted with conflicting pressures.
Some board tasks address the company’s performance; others deal with conformance with the law and other standards.
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Some require the board to be inward-looking, while others require an outward-looking approach. Some are future-focused; others are past-and present-focused.
Thus, most boards are continuously faced with dilemmas; some of which include the following:
- Ensuring the company’s prosperity yet acting responsibly towards its employees, business partners, and society
- Directing the company’s affairs or exerting entrepreneurial leadership whilst exercising prudence
- Knowing enough about the company to be able to answer for its actions, yet being able to stand back from its day-to-day management
- Meeting its shareowners’ appropriate interests yet balancing its interest to minimize tensions resulting from their stewardship
- Broadening knowledge about international, and even global opportunities, competition, and other influences yet acting locally
- Sensitive to the pressures of short-term issues and yet being informed about broader and long-term trends.
The time and tasks commitment of a directorship should not be underestimated. Even though your board may only sit formally once each quarter, as a director you must know what is going on at all times.
Nothing can absolve you from liabilities associated with your role as a director. In certain circumstances, a director can be personally liable for the company’s debts.
They could be fined heavily if the company fails to meet its statutory demands. Directors are expected to set high standards of governance and to deliver improving corporate performance.
You can never use the excuse that you were not told about something.
Don’t join a board until you’ve met other board members. Consider a trial period – i.e. date before you marry! Know something about the dynamics of the board before accepting to serve on one.
As a director, it is important you embrace the challenges of your personal liability, the vulnerability of your reputation, the volatility of shareholder battles and disputes and the intransigence of unresponsive management, being all the while mindful that the bucks start and stop with you!
The Organisation for Economic Co-operation and Development (OECD) Principles, 2015, Corporate Governance Principles, Policies and Practices -Bob Tricker
Companies Act, 1963 (Act 179), IFC Board Leadership toolkit
About the Writer
Governance Consultant, Member of ACCA and IFC Certified Board Trainer