David Levenson and Siobhán Cahalan spoke on an ICAEW webinar exploring how to prepare for being on a board and what you will discover when you arrive in the boardroom. David and Siobhán follow up below with some more advice in response to questions that were raised on the webinar.
The recording is available on-demand here:
As potential directors, what due diligence would you recommend we do on companies proposing to appoint us? Not just for preparation purposes, but also for personal risk management.
First port of call: Companies House, check filings are up-to-date, look up directors and other directorships they hold. Is there potential for conflicts of interest? That said, statutory records tend not to have the most recent information. Scan media reports and any social media comment about the company. Look at Glass Door and other review websites. An important test for you might be how open the company is, e.g. by providing you with confidential information about the board's reserved powers or shareholders’ agreements.
Providing insight, being constructive and being curious – how far can a NED be involved in checking out executives?
This is an important question. Assuming due diligence was done thoroughly when the executives were appointed, the key to this is building a relationship with the executives founded on mutual trust and appreciation of each other's responsibilities. Avoid blurring the lines, which often occurs when NEDs move into "executive mode". If a NED has serious concerns about an executive, e.g. the CEO, the best recourse is to approach in confidence the Chair, Senior Independent Director (SID) or Audit Chair, if there are such appointees, any of whom may instigate an investigation.
How do we handle a Board of Directors who micro-manage and overstep the boundaries?
This may be caused by lack of clarity over roles and responsibilities and an inability to follow the art of delegation. One suggestion is to make clear, in writing and verbally, the roles and responsibilities of the Board and your team, including holding them to account for their responsibilities. If they take their responsibilities seriously, they won't have time to micro-manage. Get them to be clear about the specific results required and deadlines while allowing the team the freedom to carry out the action steps to get to that point.
What if I, as a NED, spot that senior management are involved in malpractice but in favour of company?
If it is clearly malpractice, i.e. (1) illegal, you have a duty to report to police and relevant authorities (2) unethical, ask yourself, would I be satisfied as a customer user of services? (Remember GSK ethical framework). If it looks like the company is getting results from unethical practice, this can only be short term. Longer term, reputation counts for much more than balance sheet. If you are still uncomfortable, consider your position.
As an exec on the Board – what strategies are there to get more insightful engagement from the Board? Sometimes it feels like a one-way update.
This is really about the Chair – the Chair sets the tone. As we discussed in the webinar, if NEDs are just "turning up", they are selling the company short. Push for NED appraisals if they don't happen and include questions like how often the directors have visited or participated in front line work. Succession policy is important to avoid boards getting "stale".
Is there any value (in terms of minimizing potential personal liability) in minuting that you are a dissenting voice should you feel a course of action to be wrong resulting in a realistic chance of litigation or other legal issues arising? Or are you captured by the collective nature of board decision making?
Your dissenting opinion should be minuted for the reasons above, but on the basis that the board's business is confidential, such dissenting views should not be shared outside the boardroom. There is an important exception when discussing boards of public bodies such as NHS Trusts whose board meetings are open to the public.
How do we handle a Chair who is not impartial and shows bias when chairing a meeting?
On a practical note, how can I address the issue of receiving board papers too late to fully read in advance?
Interesting question – I have sometimes been noisy about this and have told the executives that I refuse to read papers which are circulated late. Inevitably it will arise from time to time, but should be the exception, not the rule.
Is it fair or reasonable for a NED or Trustee to go into the business/organisation and meet other team members and see how operations work etc?
Yes! It is part of being "present" as discussed in the webinar. Showing reasonable interest and indeed asking the occasional question of staff is fine. Interference is not and most competent NEDs/Trustees understand the difference.
Are there any tips on how to be Board members outside the UK for international organisation?
It depends on the location. There is a surprisingly high level of congruence between codes of governance of say UK, USA and EU entities. Less so elsewhere and it is as well to do homework on the particular jurisdiction in terms of legal duties and compliance with codes.
And finally… How much liability insurance is required or appropriate by NEDs?
Companies will usually carry the cost of indemnity insurance for all their directors. In an exceptional case, e.g. being on board because of one's professional background, your own PI might be advisable, but talk to the Company Secretary who should advise on such matters. If relying on your own PI, up to £10m per annum would be normal and cost is modest.
More on our speakers:
David Levenson is an executive and career strategy coach, and an expert in governance and leadership development. He works with senior professionals and financial executives and executive and non-executive boards as a coach and facilitator. David has been a chartered accountant since 1984. He has served as a NED for more than twenty years and is currently on the boards of an NHS Trust and a provider of homes for people with long term disabilities. David creates and delivers governance training for the Academy of ICAEW programmes:
Siobhán Cahalan is the founder of Wisdom and Vision Ltd., is an accredited executive coach and qualified coaching supervisor with a particular interest in encouraging best practice governance, supporting CEO’s and senior leaders with executive governance. She defines Executive Governance as “supporting senior leaders to lead and manage in a way that strengthens best practice governance”. Siobhán has over 20 years’ experience in managing global processes and leading global teams in several countries in varied business environments including Compliance, Risk Management and AML with a global financial institution.*The views expressed are the author's and not ICAEW's.