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Directors' Roles and Responsibilities

For most people, R & R probably means Rest and Relaxation but for those us holding a directorship role it has traditionally meant Roles & Responsibilities. More recently, with constant changes in the economic and regulatory environment, it would be fairer to mean Risk & Regulation!

Times are changing and the expectation of directors’ responsibilities have increased and changed. This is as a result of the economic and regulatory influences driven by global financial issues and local factors such as the finance company failures and the Pike River tragedy. These issues put the spotlight on directors, resulting in legislative and regulatory compliance becoming more demanding.

Directors are the representatives of an organisation with the legal responsibility to act in the best interest of that organisation and are accountable to all stakeholders. These stakeholders can include the shareholders, management, staff, regulators and the community.

The Companies Act 1993 imposes “duties” on company directors and these duties align to the more recent Financial Markets Authority publication covering Principles and Guidelines of corporate governance, which include guidance for directors, executives and advisers of a wide range of organisations and entities.

When boards clearly define the roles and responsibilities of the directors and management and put them into written documents (such as a policies and procedures manual) not only does this make it easier to hold directors accountable for their actions, it also clarifies responsibilities and priorities of strategic and operational matters. As a director it is important to remember that your role is to make strategic decisions, and management’s role is to implement them. Where possible directors are advised not to get bogged down with, or step into, operational matters, as this is management’s responsibility. It is not always easy to remember this, particularly if you have previously been very hands on operationally in your own businesses.

The essential roles and responsibilities as a director are:

Ethics

You should be honest and act with integrity and objectivity. In its simplest interpretation this means “doing the right thing”. In practice this means that all self-interest and conflicts should be disclosed in the conflict of interest register.

Competence

There is a professional expectation that you have the skill and experience to perform your role, which includes you knowing your organisation, as well as the market, economic and regulatory environment it operates in.

Risk Management 

Setting and monitoring the organisation’s risk appetite and tolerance levels. These risks include strategic, financial, operational and compliance. Know your organisation’s risks.

Commitment

Ensure you have and can make the time required and expected. Don’t rely on other directors or management to do the work – you need to “do your homework”. Regular board, self and/or peer review is essential. Ask yourself –“if I am not adding value to the board and the organisation – why am I there?”

Communication

Good open and honest communication is required with key relationships and stakeholders including the board, management and regulators. This supports the need for directors to be transparent.

Ultimately as a director your role is to govern and lead. Know what’s going on internally and externally, but remember to focus on the big picture and not get caught up in the day to day.

Please contact your usual Staples Rodway advisor if you would like help finding a board member.