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Directors’ Handbook

DIRECTORS’ HANDBOOK

In association with

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Directors’ Handbook

DIRECTORS’ HANDBOOK

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The Institute of Directors in Ireland is the representative body for senior business professionals in Ireland. Members include chief executives, chairpersons, board members, senior executives and partners of national and international entities. Affiliated to the Institute of Directors worldwide, the Institute offers a range of training and services for its members to increase their effectiveness as directors.


Directors’ Handbook Content

Foreword

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Who can be a director?

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2 Types of directors

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Procedure for appointing directors

4 The role of the board of directors – duties and responsibilities

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5 The role of the chairman

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6 The non-executive director

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7 The role of board committees

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8 The role of the company secretary

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9 Key differences between directors and managers

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10 Financial difficulty and insolvency

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11 Essential compliance for directors

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12 Procedure for removing directors

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13 Corporate governance – what you need to know

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14 Director training and education

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15 Directors’ dos and don’ts

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16 About the Institute of Directors in Ireland

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17 IoD code of conduct

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18 Frequently asked questions

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19 Useful links

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Foreword

The role of the director has come under intense scrutiny in recent years. Directors are under more pressure than ever before to not only lead their business to success, but to do so within a framework of prudent and effective management. As importantly, directors must also demonstrate a high level of professionalism and expertise in the execution of their role. It is therefore crucial that those who enter into a career as a director do so with their eyes wide open. Directors must be fully aware of what the role entails, from their place on the board, to sitting on its various committees, or even chairing an organisation. There is a wide range of duties and responsibilities attached to the role of the director and the Institute of Directors in Ireland (IoD) is committed to ensuring that our members fully understand the complexities of the position. Our primary focus is to improve the quality of directors and boards in Ireland, through advocating for better standards of corporate governance in private and public

sector organisations and developing the knowledge and expertise of our members. We want to see a move towards the professionalisation of the role of the director, whereby every director should be required to undergo a certain level of training in the duties and responsibilities of the position and keep abreast of best practice in corporate governence. It is the belief of the IoD that directors can play a real leadership role in Ireland’s future and we are committed to supporting them.

We have produced this handbook with the aim of providing a valuable resource to our members. The content is drawn from a variety of sources, most notably those of our colleagues at the Institute of Directors in the UK who have kindly given us access to their copyright material. The handbook seeks to outline the duties attached to the role of the director and we hope that it will be useful not just for newly appointed directors, but also for more experienced directors who wish to refresh their knowledge and expertise. All directors working in Ireland should find it a helpful guide.

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We would like to offer a special word of thanks to McCann FitzGerald solicitors and our IoD colleagues in the UK for their invaluable contribution and support in compiling this handbook. For further information on the material provided by the IoD in the UK please visit www.iod.com/ director-role Maura Quinn, Chief Executive, Institute of Directors in Ireland

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Directors’ Handbook

1 Who can be a director?

2 Types of directors

Each company must have at least two directors who act together on a board of directors. There is no particular qualification needed for the role of director, although those who hold directorships will often have significant management experience. It is also becoming common for directors to attain a certain level of training for the role, either through participation in professional training workshops or more extensive development programmes.

There are a number of types of company director:

There are a number of instances whereby a person can be prevented from becoming a director at certain times. These include bankrupts, who are prohibited from being directors while their debts remain unpaid or until a court excuses them from paying those debts. People whom a court has found guilty of serious misconduct may also be disqualified from acting as directors for a certain period. In addition, if a person is found by a court to have acted dishonestly or irresponsibly in a company that failed to pay its debts, the court may also restrict them.

Registered Director – these are clearly appointed by the board or by shareholders and are registered as being a director of the company. Registered directors can be either executive or non-executive.

De facto Director – these perform the duties of a director even though they may not be formally appointed. They can have the same duties as registered directors.

Shadow Director – these are not formally appointed but may give instruction to and/or have influence over directors or the board. Shadow directors are often subject to many of the legal responsibilities of an appointed director.

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3 Procedure for appointing directors

The process for appointing directors raises two issues: • legal requirements; and

• recruitment issues relating to appointments at this level.

Legal requirements Every Irish company must have at least two directors. The first directors of a company are appointed at the time of registration of the company. On registration, the persons named in Form A1 will be deemed to have been appointed as the first directors.

Certain persons, such as a body corporate or an undischarged bankrupt cannot act as a director. Neither can a person who is disqualified from doing so under the Companies Acts.

Each Irish registered company requires at least one director to be resident in a member state of the EEA, failing which, an insurance bond is required or a certificate of an economic link with Ireland from the Registrar of Companies is necessary.

There is a limit on the number of directorships a person can hold in an Irish registered company. With various exceptions, a person cannot hold more than twenty-five directorships in private limited companies.

Subsequent appointments of directors are governed by the Articles of Association of the company but any shareholders’ agreement should also be checked. Typically, Articles will provide for the board of directors itself to appoint a new director to fill a casual vacancy, or to appoint additional directors up to the maximum number permitted by the Articles. The board of directors will need to pass a resolution in the normal way ensuring that proper notice of the meeting is given, that it is quorate and the resolution is passed by a majority of the votes cast. Alternatively, a written resolution may be used if permitted by the company’s Articles of Association. To protect the shareholders, some articles of association require

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directors appointed by the board of directors to retire at the next AGM and seek reappointment by the shareholders.

Elections or re-elections of directors following retirement by rotation, or removal of directors, are reserved to the company in general meeting. When a director is appointed, he or she must signify consent to the appointment by signing Form B10, and, if an executive director, should be given a service agreement which adheres to the stipulations of Employment Law. Form B10 must be filed at the Companies Registration Office. The director should be reminded to acquire the share qualification (if any) specified in the Articles. Additionally, the director will be required to disclose any interests in shares or debentures in the company and should be invited to give a general notice of any interests in contracts involving the company.

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Recruitment Because directors play such an important role in companies, their recruitment demands a correspondingly systematic and professional approach.

Key factors to take into account are:

• the board should clearly identify the skills gap that it wishes to fill, based on its corporate objectives and priorities over the next five years. Doing so will make it easier to provide an accurate profile of the person who needs to be appointed;

• a search plan should be devised to target prospective candidates. Here it may be cost-effective to use a specialist search firm such as the IoD’s Boardroom Centre;

• a remuneration package should be offered that is both compatible with the company’s financial status and is likely to attract candidates which the company requires.


Directors’ Handbook

4 THE Role of the board of directors – duties and responsibilities The board’s key purpose is to ensure the company’s prosperity by collectively directing the company’s affairs, while meeting the appropriate interests of its shareholders and relevant stakeholders. It is for the board to judge, on a case by case basis, which stakeholders it treats as relevant and which of their interests it is appropriate to meet, taking into account the law, relevant regulations and commercial considerations. In pursuing this key purpose, a board of directors faces a uniquely demanding set of responsibilities and challenges. It also faces a range of objectives that can sometimes seem contradictory. The board:

• must simultaneously be entrepreneurial and drive the business forward while keeping it under prudent control;

• is required to be sufficiently knowledgeable about the workings of the company to be answerable for its actions, yet able to stand back from the day-to-day management of the company and retain an objective, long-term view; • must be sensitive to the pressures of short-term issues and yet take account of broader, long-term trends; • must be knowledgeable about ‘local’ issues and yet be aware of potential or actual wider competitive influences;

• is expected to be focused on the commercial needs of its business while acting responsibly towards its employees, business partners and society as a whole. Each board member is expected to recognise these challenges and ensure that they personally contribute to finding the right balance between these various competing pressures. In seeking to do so, executive directors may

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find it difficult to see beyond their direct focus on the business and its day-to-day problems; non-executive directors, on the other hand, may find it difficult to feel sufficiently informed about the direct day-to-day pressures faced by the company. Tasks of the board It is, of course, impossible to list every task that each individual board of directors has to carry out. Each board has to consider its own situation and circumstances. For example, small privately owned companies might not be concerned with many of the issues that preoccupy large listed companies.

However, the majority of boards can be helped greatly by focusing on four key areas:

1. Establish vision, mission and values • determine the company’s vision and mission to guide and set the pace for its current operations and future development; • determine the values to be promoted throughout the company;

• determine and review company goals; • determine company policies.

2. Set strategy and structure • review and evaluate present and future opportunities, threats and risks in the external environment; and current and future strengths, weaknesses and risk relating to the company; • determine strategic options, select those to be pursued, and decide the means to implement and support them;

• determine the business strategies and plans that underpin the corporate strategy. 14


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3. Delegate to management • delegate authority to management, and monitor and evaluate the implementation of policies, strategies and business plans;

• determine monitoring criteria to be used by the board; • ensure that internal controls are effective; • communicate with senior management.

4. Exercise accountability to shareholders and be responsible to relevant stakeholders • ensure that communications both to and from shareholders and relevant stakeholders are effective; • understand and take into account the interests of shareholders and relevant stakeholders; • monitor relations with shareholders and relevant stakeholders by the gathering and evaluation of appropriate information;

• promote the goodwill and support of shareholders and relevant stakeholders.

Each board should decide what it needs to do in order to achieve its overall purpose and identify any gaps or deficiencies in what it is already doing. The board is also encouraged to focus on those tasks that it must, or wishes to, undertake itself and to decide which should more properly be carried out by senior management. Many boards of larger companies devise a schedule of reserved powers that explicitly distinguishes between those tasks that are to be the sole responsibility of the board and those that can legitimately be devolved to senior managers. The effective board Within a company, the board of directors is the principal agent of risk taking and enterprise, the principal maker of commercial and other judgements. Discharging these responsibilities means thinking not only about particular tasks but also about ways of working as a board,

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and ensuring individual directors can be fully equipped to play their part. Again, there are four particular areas worthy of time and energy: • determining board composition and organisation;

• clarifying board and management responsibilities;

• planning and managing board and board committee meetings; • developing the effectiveness of the board.

These activities are normally undertaken by the chairman of the board, part of whose role is to manage the board’s business and act as its facilitator and guide.

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5 The role of the chairman

The chairman’s primary role is to ensure that the board is effective in its tasks of setting and implementing the company’s direction and strategy. The chairman is appointed by the board and the position may be full-time or part-time. In smaller companies the role is often combined with that of managing director, however, the joint role is not considered appropriate for public listed companies. The main features of the role of chairman are as follows:

• as well as being chairman of the board, he/she is expected to act as the company’s leading representative which will involve: the presentation of the company’s aims and policies to the outside world;

• to take the chair at general meetings and at board meetings. With regard to the latter this will involve: the determination of the order of the agenda; ensuring that the board receives proper information; keeping track of the contribution of individual

directors and ensuring that they are all involved in discussions and decision making. At all meetings the chairman should direct discussions towards the emergence of a consensus view and sum up discussions so that everyone understands what has been agreed;

• to take a leading role in determining the composition and structure of the board. This will involve regular reviews of the size of the board, the balance between executive and non-executive directors and the balance of age, experience and personality of directors.

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The effective chairman The Higgs review1 cites that the effective chairman:

• upholds the highest standards of integrity and probity; • sets the agenda, style and tone of board discussions to promote effective decision making and constructive debate;

• promotes effective relationships and open communication, both inside and outside the boardroom, between nonexecutive directors and the executive team;

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In 2002 the UK Department of Trade commissioned an independent review (chaired by Derek Higgs) of the role and effectiveness of non-executive directors in the UK. Many of the recommendations of the Higgs review were taken up by the Financial Reporting Council in its 2003 version of the Combined Code on Corporate Governance.

• builds an effective and complementary board, initiating change and planning succession in board appointments, subject to board and shareholders’ approval; • promotes the highest standards of corporate governance and seeks compliance with the provisions of applicable codes wherever possible;

• ensures a clear structure for and the effective running of the board committees; • ensures effective implementation of board decisions; • establishes a close relationship of trust with the chief executive, providing support and advice while respecting executive responsibility; • provides coherent leadership of the company, including representing the company and understanding the views of shareholders.


Directors’ Handbook

6 The non-executive director

Executive verses non-executive director Legally speaking, there is no distinction between an executive and non-executive director. Irish company law does not see the roles as distinct and therefore does not distinguish between their responsibilities. Yet there is inescapably a sense in which the non-executive director’s role can be seen as balancing that of the executive director, so as to ensure the board, as a whole, functions effectively. Where the executive director has an intimate knowledge of the company, the non-executive director may be expected to have a wider perspective of the world at large. Where the executive director may be better equipped to provide an entrepreneurial spur to the company, the non-executive director may have more to say about ensuring prudent control.

The role of the non-executive director All directors should be capable of seeing company and business issues in a broad perspective. Nonetheless, non-executive directors are usually chosen because they have breadth of experience, are of an appropriate calibre and have particular personal qualities. Additionally, they may have some specialist knowledge that will help provide the board with valuable insights or perhaps key contacts in related industries. Of the utmost importance is their independence of the management of the company and any of its interested parties. This means that they can bring a degree of objectivity to the board’s deliberations, and can play a valuable role in monitoring executive management.

Functions of the non-executive director Non-executive directors are expected to focus on board matters and not to stray into executive direction, thus providing an independent view of the company that is removed from 19


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day-to-day running. Non-executive directors, then, are appointed to bring to the board: • independence; • impartiality;

• wide experience;

• special knowledge; • personal qualities.

Key responsibilities of the nonexecutive director Chairpersons and chief executives should use their non-executive directors to provide general counsel – and a different perspective – on matters of concern. They should also seek their guidance on particular issues before they are raised at board meetings. Indeed, some of the main specialist roles of a non-executive director will be carried out in a board sub-committee, especially in listed companies. The key responsibilities of non-executive directors can be said to include the following:

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• Strategic Direction As an outsider, the non-executive director may have a clearer or wider view of external factors affecting the company and its business environment than the executive directors. The normal role of the non-executive director in strategy formation is therefore to provide a creative and informed contribution and to act as a constructive critic in looking at the objectives and plans devised by the chief executive and his or her executive team.

• Monitoring Non-executive directors should take responsibility for monitoring the performance of executive management, especially with regard to the progress made towards achieving the determined company strategy and objectives. • Communication The company’s and board’s effectiveness can benefit from outside contacts and opinions. An important function for nonexecutive directors, therefore, can


Directors’ Handbook

be to help connect the business and the board with networks of potentially useful people and organisations. In some cases, the non-executive director may be called upon to represent the company externally.

Why appoint a non-executive director – what are the benefits? The essential contribution of nonexecutive directors is that they bring a fresh and wider view to board discussion and decision making. The following are some of the benefits that a non-executive director can offer: • Seeing issues in their totality Executive directors, because of their managerial responsibilities, may not be best equipped to give proper weight to the differing aspects of issues faced by the board. Non-executive directors can usually view matters from a broader perspective.

• Giving the external view Because they are not heavily involved in the day-to-day running of the company, nonexecutive directors can bring a wider judgement to bear on matters before the board. This is particularly useful in the context of strategic planning, or when events of special importance to the company’s future, such as mergers, acquisitions and large capital projects are involved. Nonexecutive directors can provide new perspectives, thus helping the board to think through and challenge its underlying strategies and examine the options.

• Providing special skills A company that has moved into a new market or diversified may need counsel from an expert. The addition of a non-executive director with specialist skills can therefore be hugely beneficial. Non-executive directors can strengthen the board by providing specialist expertise outside that of other directors. 21


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• Monitoring the operations of the company While corporate governance is a key area of focus for nonexecutive directors, they are not the primary custodian of corporate rectitude. Corporate governance and ethics are the concern of all directors and the board must work collectively to ensure that the company operates to the highest standards of corporate governance.

• Providing an independent view on potential conflicts of interest This means trying to ensure that the proper balance is struck between the various interests in a company. It assumes particular importance where the executive directors’ interests may conflict with those of shareholders. • Providing contacts As a result of their part-time role, non-executive directors will generally have more contact and involvement with the greater business community. This may be put to use in identifying sources

of finance or in contacts with potential customers or suppliers, with government or with sources of professional advice.

• Family owned companies Non-executive directors provide a particularly useful role on the boards of family controlled private companies. In these companies the non-executives can bring considerable value to the boards through their personal skills and experience. They provide independent and dispassionate advice at times of transition in the management of these companies, particularly when management control is being passed to the next generation of a family. Non-executive directors provide the board with attributes such as specialist knowledge, expertise, objective judgement and balance, which may not be fully available if the board consists only of fulltime executives, busy with their managerial responsibilities.

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It is tempting to think that all of these attributes can be supplied solely by executive directors. Unfortunately, this is rarely the case, if only because executives devote virtually all of their time and energy to the company’s business. Their day-to-day responsibilities and their company experience are often confined to a limited part of the business. In addition, their active management role may be incompatible with the monitoring role which can be performed by the non-executive director. Consequently, it is unrealistic to expect executive directors to provide the detached and independent view that non-executive directors can offer. Terms of appointment for a nonexecutive director The following core information will usually need to be included: Conditions of appointment Details of when the appointment will start, the length of the initial engagement period, and conditions relating to the review of the 24

appointment. The conditions and/ or circumstances under which either the company or the non-executive director can terminate the position should also be included. Duties Core duties and periodic responsibilities should be listed. Typically these will include: membership of any board committees; the nonexecutive director’s expected time commitment; and any other performance related issues.

Fees and expenses Details of remuneration, which should reflect the time commitment and responsibilities of the role, the frequency of payment and the entitlement, if any, to expenses and how they should be claimed. Confidentiality The rules about non-disclosure of commercially sensitive information and/or any types of information as specified by the company. These would apply to the non-executive director not only while he or she


Directors’ Handbook

holds office, but also subsequent to the appointment.

Other obligations A pledge on behalf of the nonexecutive director that he or she will comply with:

• all statutory requirements relating to the company’s register of directors and the register of directors interests; • for listed companies, the Model Code for Securities Transactions by Directors.

Company property and documents Provision, in the event of a nonexecutive director’s appointment being terminated, for the return of any property or documents relating to the company’s affairs.

• directors’ and officers’ liability insurance held by the company;

• access to independent professional advice.

How long should a non-executive director serve on a board? Best practice dictates that all directors are put up for annual re-election2. However, this may not be feasible for every organisation and in those circumstances it is recommended that non-executive directors are put up for re-election every three years as this is considered an appropriate interval during which to assess the value to the company of the particular nonexecutive director.

Other provisions Other provisions the company should include such as details relating to: • induction process;

• an obligation to disclose any outside interest which may cause a conflict;

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Under the 2010 UK Corporate Governance Code (formerly the Combined Code on Corporate Governance) all directors of FTSE 350 companies are to be subject to annual re–election. 25


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The term of appointment for a nonexecutive director should be fixed, albeit subject to renewal for another term. It is important to recognise that the non-executive directors’ effectiveness may improve with experience of the company.

for setting the remuneration of the company’s executives. In determining remuneration, it is important to have regard to the level of commitment, the expertise required and the levels paid by similar entities.

Therefore, in order to maintain independence, it is recommended that a non-executive should not serve on a board for longer than a maximum of nine years.

Generally, remuneration varies and depends largely on how much time and effort non-executive directors are asked to and able to give to their duties, including any special functions undertaken. Where nonexecutive directors have additional responsibilities, such as membership and/or chairmanship of board subcommittees, their remuneration should reflect this. The remuneration for a non-executive role should adequately match the responsibilities.

The board must recognise however, that the point may come when, with the passage of time, individual nonexecutive directors may become less able to make independent contribution, inevitably over a period of years, the distinctive freshness and originality of approach may be lost.

Remuneration guidelines for nonexecutive directors The board as a whole should normally set the remuneration of non-executive directors. Where remuneration committees exist, they will comprise non-executive directors and will be responsible 26

Non-executive directors should be adequately compensated for the total time, in preparation, visits and meetings, spent on the company’s business. However, it is important that they should not be dependent on the company for a significant part of their income as this may compromise independence.


Directors’ Handbook

7 The role of board committees

The Articles of Association of a company will usually empower the board of directors to appoint committees. Matters such as who can be on committees and how committees regulate their meetings will also usually be dealt with in the Articles. It should be remembered that a committee is the creation of the board, the powers of a committee are derived from the board and they must therefore always remain under the board’s control. Each committee’s status and functions should be clearly specified in its terms of reference. The role of the audit committee This committee is intended to provide a link between the auditor and the board, independent of the company’s executives, since the latter are responsible for the company’s accounting rules and procedures that are the subject of the audit. The committee may thus help the board to discharge its responsibility with regard to the validity of published statements. The UK Corporate Governance

Code (formerly the Combined Code) recommends that all members of the audit committee should be independent non-executive directors. The role of the nomination committee One of the board’s most crucial functions is to decide on new appointments to the board and to other senior positions in the company. Again, in some cases, this is done within a committee composed of executive and nonexecutive directors, whose task it is to ensure that appointments are made according to specifications. Where implemented, the appraisal of directors is often tied directly into the selection and nomination process.

As a matter of good practice, the selection process of directors should be carried out by the nomination committee, which then makes recommendations to the full board. Non-executive directors should form a majority of this committee. 27


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The role of the remuneration committee Devising the appropriate remuneration packages for the executive directors can be one of the most contentious issues a board faces – not least because of the publicity that executive pay has attracted in recent years. It is vital that decisions regarding executive remuneration, benefits and bonuses are seen to be taken by those who do not stand to benefit directly from them. In listed companies and some large private companies therefore, policy on executive remuneration is usually decided by a committee of non-executive directors. As a matter of good practice, executive directors should not be responsible for determining their own remuneration.

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How the remuneration committee should prepare Rewarding executives requires informed judgement. Remuneration committee members do not need expert knowledge, but they do need data to make sound decisions on levels of remuneration, on the link between remuneration and performance, and on the structure and cost of all elements of the executive package. Remuneration committees need to have a thorough understanding of their company and the forces that shape directors’ remuneration. Understanding the business Directors’ remuneration levels vary greatly from business to business. The key factors in decision making are listed below: • Business ‘size’ Size can affect all aspects of pay – base salary levels, annual bonus design, performance measures and the type of long term incentive plans that are appropriate. But it is a variable concept. It can be measured


Directors’ Handbook

in terms of revenues, capital employment, margins and financial structures. Market capitalisation is seldom the main factor in directors’ remuneration.

• Performance record and prospects Is the company a new business, an established business with a steadily improving performance, a business that is going through recovery or a turnaround? Are there clear strategic challenges to address? Is it fast growing with an unpredictable future, or stable with limited but fairly certain prospects? • Sector Both business sector and the position of the business within it are significant.

• Internationalisation, complexity and innovation Should the companies all follow Irish pay norms? How should they accommodate European or US pay norms for their overseas directors? Should the pay of directors in international or high

technology companies differ from that of directors in companies of equivalent size that operate only in Ireland, or in low-technology or regulated industries?

• Cashflow and debt levels Both of these might place an important limitation on smaller organisations where the pay of directors can be a significant proportion of business costs.

• Key performance measures These should provide the essential underpinning when it comes to designing incentives, be they short term or long term. What are the important performance measures that are associated with increasing shareholder value? How is the company doing in comparison to its competitors on these measures? What are the critical short term and long term indicators of performance?

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Understanding company culture and values Every organisation has its own culture and values, and these are frequently reflected in remuneration, whether in the design of incentives or the type of benefits available, or indeed, the level of remuneration itself. External directors need to be able to recognise deeply held values that are associated with success and to avoid cutting across these values when it comes to remuneration arrangements.

Understanding current arrangements Remuneration committees are rarely given the luxury of starting from a clean slate. Before the first meeting, it is useful to get a full briefing from fellow committee members, the chief executive or the human resources director. In particular, the committee must know:

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• The overall remuneration philosophy The positioning of total remuneration relative to the market place, the definition of the market place, the approach to short term and long term incentives, the benefits policy etc.

• Contract details Notice periods, severance arrangements, compensation for loss of office, special arrangements (if any) in relation to changes of control.

• Details of individual directors’ remuneration for the past three to five years Including base salary, bonuses, long term incentive grants and exercise values. • How far current remuneration complies with guidelines For example those of the Irish Association of Investment Managers, the Association of British Insurers, NAPF, CIROC.


Directors’ Handbook

• Any immediate changes planned For example as a result of the expiry of a share option plan, or a change in the strategy of the business.

• Any special arrangements for individual directors and why they exist New hires or executives approaching retirement, for example, might have been offered something different.

Understanding stakeholder interests Within the confines of the law and Stock Exchange listing requirements, directors’ remuneration is chiefly a matter for the company, its shareholders and executives. However, decisions are closely watched by a wide range of other people and institutions. Executive pay can come under fire when an interest group’s view of the company clashes with the way the board is being rewarded. As a result, understanding interest groups and their perceptions of the

company is vital in ensuring smooth implementation of remuneration committee recommendations. Special considerations arise in the case of directors’ remuneration being paid by financial institutions that benefit from the State financial guarantee. 3 Understanding the market The final element of preparation is to understand markets and market data. Remuneration committees should take particular care in their use of surveys. However, market data is an important input into remuneration committee deliberations. Market data is there to be questioned and interpreted. It defines the parameters of normality – the boundaries of what is reasonable.

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The State has, for a limited period of time, guaranteed certain liabilities of some Irish banks and building societies. 31


Directors’ Handbook

8 The role of the company secretary

The secretary is an officer of the company and his or her duties can be wide ranging. The role usually entails the following: • Maintaining the company’s statutory registers or books.

These should include:

- a register of present and past directors and secretaries; - a register of all shareholders, past and present and their shareholdings;

- a register of any charges on the company’s assets; - minutes of general meetings and board meetings; - a register of the debenture holders (typically banks).

• Filing annual returns to the Companies Registration Office.

Other documents which must be filed include the directors’ report and auditors’ report (unless the company is exempt), and financial statements, including details of the company’s assets and liabilities.

• Arrange meetings of the directors and shareholders. This responsibility will involve the issues of proper notices of meetings, preparation of agenda, circulation of relevant papers and taking and producing minutes to record the business transacted at the meetings and the decisions taken.

• Informing the Companies Registration Office of any significant changes in the company’s structure or management, for example the appointment or resignation of directors.

• Establishing and maintaining the company’s registered office as the address for any formal communications.

• Ensuring that all the company’s business stationery carries its name, registered number, country of registration and registered address. These details must also appear on the company’s website, emails and order forms. 33


Directors’ Handbook

• Ensuring the security of the company’s legal documents, including for example, the Certificate of Incorporation and Memorandum and Articles of Association.

• Deciding on the company’s policy for the filing and retention of documents. Additional Duties The company secretary will invariably be required to take on a variety of additional administrative duties. Typically these include: • Insurance

• Company pension scheme

• Administration of share schemes • PAYE & payroll

• VAT registration

• Management of the company’s premises and facilities • Office management

• Compliance with data protection and health & safety requirements 34

• Intellectual property

• Advising directors on their duties and ensuring that they comply with corporate legislation and the Articles of Association of the company

For public companies the company secretary will also be responsible for compliance with the requirements of the Stock Exchange, management of the company’s registrars and compliance with the UK Corporate Governance Code (which also applies to Irish listed companies). With the increasing focus in recent years on corporate governance, the role of the company secretary has grown in importance. In many ways, the secretary is now seen as a guardian of the company’s proper compliance with the law and best practice.


Directors’ Handbook

9 Key differences between directors and managers There are many fundamental differences between being a director and a manager. It is not simply a trivial matter of getting a new job title and a bigger office. The differences are numerous, substantial and quite onerous. Below is a detailed breakdown of the major differences between directing and managing. Leadership

Decision Making

Duties and Responsibilities

DIRECTORS

MANAGERS

It is the board of directors who must provide the intrinsic leadership and direction at the top of the organisation.

It is the role of managers to carry through the strategy on behalf of the directors.

Directors, not managers, have the ultimate responsibility for the long term prosperity of the company. Directors are required in law to apply skill and care in exercising their duty to the company and are subject to fiduciary duties. If they are in breach of their duties or act improperly, directors may be personally liable in both civil and criminal law. On occasion, directors can be held responsible for acts of the company. Directors also owe certain duties to the stakeholders of the company.

Managers have far fewer legal responsibilities than directors.

Directors are required to determine the future of the organisation and protect its assets and reputation. They also need to consider how their decisions relate to stakeholders and the regulatory framework. Stakeholders are generally seen to be the company’s shareholders, creditors, employees and customers.

Managers are concerned with implementing the decisions and the policies made by the board.

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Relationship with Shareholders

Ethics and Values Company Administration

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Directors are accountable to the shareholders for the company’s performance and can be removed from office by them or the shareholders can pass a special resolution requiring the directors to act in a particular way. Directors act as “fiduciaries” of the shareholders and should act in their best interests but also take into account the best interests of the company (as a separate legal entity) and other stakeholders.

Managers are usually appointed and dismissed by directors or management and do not have any legal requirement to be held to account.

Directors are responsible for the company’s administration.

While the related duties associated with company administration can be delegated to managers, the ultimate responsibility for them resides with the directors.

Directors have a key role in the determination of the values and ethical position of the company.

Managers must enact the ethos, taking their direction from the board.


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Statutory Provisions on Insolvency

If a company becomes insolvent, there are various duties and responsibilities imposed on directors that may involve personal liability, criminal prosecution and disqualification.

Statutory Provisions in General

There are many other statutory provisions that can create offences on strict liability under which directors may face penalties if the company fails to comply. A wide range of statutes impose duties on directors.

Disqualification

Directors can be disqualified (or restricted) as directors.

These statutory provisions do not usually affect managers. Increasingly managers can be held responsible under various statutes where a company commits an offence with the consent, connivance or neglect of the manager.

The control over the employment of a manager rests with the company. A manager can be subject to disqualification under the Companies Acts.

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10 Financial difficulty and insolvency

The legal duties of directors when a company is in financial trouble or insolvent can differ from their general duties. Highlighted below are those legal duties specific to insolvency-related cases.

To consider the interests of creditors above those of members When a company is clearly solvent, directors must act in the interests of the shareholders in general. When a company is insolvent and even when it is of doubtful solvency, the position changes: creditors come first. Not to act for any personal or additional purpose All directors should separate their own personal interest (as shareholder, executive, creditor etc) from the company’s interests. Their duty is to act in the interests of the company. To take steps to avoid loss to creditors Under insolvency legislation, a director will be personally liable for reckless trading if a liquidator can show that they knew or ought to have concluded that there was 38

no reasonable prospect of avoiding liquidation but continued to conduct business as ‘normal’. Liability will not arise if the director can show (to the court’s satisfaction) that they took every possible step to minimise the potential loss to the company’s creditors. They must be seen to have actively tried to do this.

A director should never allow a company to accept credit if, in his or her view, there is no reasonable expectation of the creditor being paid at, or shortly after, the time when the debt becomes due. Anyone knowingly party to a transaction in such circumstances could be ordered by the court to make contributions to a company’s assets, and be guilty of the criminal offence of fraudulent trading. Not to enter into transactions at an undervalue or make preferences Insolvency legislation permits a liquidator of a company and certain other parties to apply to a court to set aside or vary transactions at an undervalue as well as


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preferences entered into within a specified period before insolvency proceedings began. In setting a transaction aside, a court will make an order to restore the position to what it would have been had the transaction not taken place. This may result in personal liability for the directors of the company and disqualification proceedings against any director responsible for the transaction concerned.

Actions that minimise the risks of liability It is important not only that the following steps are carried out, but also that they are seen to be carried out; the behaviour of directors may be carefully scrutinised by a future liquidator or administrator. Actions taken in the interests of a company and its creditors should be methodically documented and explained. All meetings must be minuted. Directors must give reasons for their decisions and cite the advice they have taken. Directors who can show that they acted in good faith on the advice of suitably

qualified professionals will be more likely to avoid reckless trading allegations – even if the liquidator believes the advice they were given was wrong. Monitoring the financial position of the company A director should regularly review the company’s financial position in order to assess whether the company is solvent and to determine its prospects of avoiding insolvent liquidation. This will generally involve the preparation of regular statements of affairs and cash-flow projections and other current financial information – in collaboration with auditors and other advisers as necessary.

Directors should establish a procedure for the finance director to keep the board informed of the performance and prospects of the company. This will generally involve frequent board meetings. The directors should be satisfied that, taking into account their duties to creditors, shareholders

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and employees, the company may properly continue to trade. Each director should carefully consider the company’s ability to pay before arranging for the receipt of any further goods or services on credit, and the board should regularly review the company’s financial position. These reviews should be fully minuted.

Individual directors should raise any concerns over solvency with the board as a whole. If their fears are not heeded, they should repeat them and take steps to protect their own position.

If directors believe the minutes of a board meeting do not properly reflect the views that they put forward, they should ask for a correction, and failing that, write to the chairman (copying the letter to other board members) re-stating their position. It is important for there to be a written record of what a dissenting director said, and when, whether it appears in the official board minutes or elsewhere. 40

When going through a difficult period, directors must regularly ask whether their company fails the ‘solvency test’. A company will be regarded as insolvent when it is unable to pay its debts or the value of its assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.

Taking advice Directors of a company in financial difficulties often face a dilemma. It seems that they are expected to be neither unduly rash nor unduly cowardly. Causing a company to cease to trade or putting it into examination or liquidation, or seeking to have a receiver appointed prematurely can be as damaging to the interests of the creditors as allowing a company to carry on trading against all odds. Directors must act responsibly, resisting, on the one hand, their natural tendency to be overoptimistic or to refuse to accept defeat and, on the other hand, the temptation to succumb to


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despair without considering the options available. Their analysis of the company’s performance and prospects should be based on up-to-date financial information, fully minuted and should almost certainly involve consultation with professional legal and financial advisers. Advisers can offer a range of ‘restructuring options’, including finding a buyer to maximise the value of the company’s assets.

Accurate, complete and up-to-date information and access to financial and legal advice from appropriately qualified professionals will significantly strengthen a director’s position in the event of a court hearing.

Formulating a viable strategy If the company’s performance and prospects demand it, a board should formulate a strategy for restoring a company to a healthy financial position and avoid formal insolvency proceedings. The action plan may involve one or a number of the following:

• alternative trading strategies;

• disposals;

• maximising existing asset values; • cutting overheads;

• delaying capital investment; • further bank finance;

• converting debt to equity, converting short term debt to long term debt, or raising new equity;

• an informal arrangement with major creditors or a voluntary arrangement;

• arranging alternative sources of funding from other financiers, particularly where a bank is unlikely to advance further money. The chosen strategy must have the support of the board. In addition, its viability must be reviewed by appropriate advisers and its implementation constantly monitored. At each meeting, the board will need to review whether the strategy is being implemented

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as envisaged and whether the underlying assumptions are still reasonable. All decisions made and the reasons for them should be recorded in the minutes, as should any advice taken.

Holding regular meetings Board meetings should be held at regular scheduled intervals. All directors should endeavour to be present in person or by phone/ conference facility. Detailed minutes should be kept of all meetings and circulated promptly. Additional meetings should be called as and when new significant events occur. Briefing papers should be circulated before such meetings to promote informed discussion. Absent directors should be told as soon as possible of critical decisions taken at board meetings.

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Involving all directors Undoubtedly, the involvement of the finance director and any members of the management team responsible for credit control and assessing the current and future financial performance of a company will be key. Depending on the nature of a recovery strategy, input from sales, marketing and production executives may also assume a greater importance.

In most cases, however, it will be the non-executive directors who are best placed to assess whether a company is able to continue trading and, in particular, whether it can justify incurring fresh liabilities. Non-executive directors bring objectivity, experience and financial independence to the board. Where a company’s prospects for survival are uncertain, their involvement will ensure that the interests of creditors and shareholders are not overlooked and will facilitate discussions with banks and other lenders.


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Keeping major creditors informed It is important that the distribution of information to creditors’ groups is handled in an orderly way. Information to be released to creditors should be discussed with and, in some circumstances, presented by the company’s advisers. Where a strategy to be implemented requires creditors’ support (principally that of the lending banks), a careful and clear presentation is required. This chapter is adapted from the IoD UK Director’s Handbook, third edition 2010. The Institute of Directors and Pinsent Masons LLP, 2005, 2007, 2010.©

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11 Essential compliance for directors

Directors understand that they may face civil and criminal liability for their actions and omissions. Those risks, be they legal, operational, business, compliance or financial, can be greatly reduced if the company has in place an ongoing programme to identify the risk, measure it and manage or avoid it. If the company is a regulated service provider it can be required to provide a compliance statement to the Financial Regulator when required to do so and, more generally, the proposal of the Company Law Review Group, to be enacted in the proposed Companies Consolidation and Reform Bill over the coming years, to include provisions in respect of corporate compliance statements by directors of certain companies.

Directors are often uncertain as to how to undertake such a compliance programme. This chapter concentrates on legal and regulatory risk although many aspects considered are of wider application to other areas of risk. Whilst some

tasks can be delegated by the board, ultimately it is in the interests of each director to be confident that the company has properly considered compliance. Expectation must be realistic – no compliance system can assure an absolute or perfect standard of compliance. Indeed, striving for perfect compliance could be prohibitively expensive in terms of an unwarranted focus on marginal issues (i.e. those in respect of which there is both a low risk of occurrence and a low risk of harm if they do occur (see overleaf)): an organisation might expend so much time on maintaining its compliance system and procedures as to lose sight of its real purpose. A compliance system must be proportionate to the objective that has been set for it. An inappropriately burdensome compliance system can in fact be an impediment to compliance as maintaining and operating the system can require such a level of resources and such an amount

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of time that merely operating and maintaining the system distracts from actual compliance. In this way, care should be taken to balance the burden of operating any particular compliance procedure with the materiality of the risks that it is seeking to manage or eliminate. The two key actions are:

Identify compliance obligations Legal and Regulatory compliance obligations can stem from a range of sources although the most obvious are legislation (primary and secondary) and the mandates of any regulatory authority. However, other sources include: • specialist bodies the standards advocated by which are significant in an industry (such as the UK Corporate Governance Code, or in the case of Irish banks or insurance undertakings, the Corporate Governance Code for Credit Institutions and Insurance Undertakings (2010)); and

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• requirements of a shareholder or other stakeholder (such as the 2009 edition of the Department of Finance Code of Practice for the Governance of State Bodies). It is prudent for an organisation to maintain a list of the material obligations to which it is subject (materiality being assessed in the manner suggested below). The formulation and updating of that list should typically be informed by the personnel who are working in different areas of the company’s business.

Materiality and risk sensitivity The materiality of a compliance obligation should be assessed according to two criteria: hazard (the risk of occurrence) and consequence (the implications of a compliance failure). This assessment may be primarily legal but will inevitably and properly be informed by a degree of intuition.


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Materiality and Risk Sensitivity:

HAZARD (Increasing)

MODERATE MATERIALITY Compliance Concern Rising risk of occurrence but the consequences of an occurrence are unlikely to be signi icant

GREATEST MATERIALITY Compliance Focus Rising risk of occurrence and the consequences of an occurrence are likely to be signi icant

CONSEQUENCES (Decreasing)

CONSEQUENCES (Increasing) LEAST MATERIALITY Lower Compliance Concern Decreasing risk of occurrence and the consequences of an occurrence are unlikely to be signi icant

MODERATE MATERIALITY Compliance Concern Lower risk of occurrence but the consequences of an occurrence are likely to be signi icant

HAZARD (Decreasing)

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The assessment will vary from organisation to organisation as the compliance landscape for any two particular entities may well differ. Hazard and consequence describes a tendency rather than absolutes, e.g the risk of any particular compliance failure occurring may be very high or ‘merely’ high or moderate, or it may be almost non-existent etc.

Nonetheless, the following may assist a company in assessing hazard and consequence in the case of any particular compliance obligation.

Assessing Hazard (i.e. assessing the likelihood of a breach occurring) (i) Whether the obligation is technical – the more technical a provision is, the greater the possibility that a breach could occur inadvertently or by reason of misinterpretation or human error. The more straightforward a provision is, the less likely it is that a breach might occur for any of those reasons; (ii)

The frequency with which an obligation might be expected to arise – as a starting point, the greater the frequency with which an obligation must be performed, the greater the likelihood of an omission (such as by oversight or other human error) on one or more of those frequent occasions. Some broad scenarios can be relevant;

- where an obligation (inherently) arises infrequently, or arises 48


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in scenarios that occur infrequently or even rarely, then the likelihood of a breach occurring should be discounted accordingly (even if the consequence of a breach might be onerous);

- where an obligation arises frequently but unpredictably, then the lack of predictability in itself increases the riskhazard, because, statistically, an oversight may be more likely to occur; - where an obligation arises at predictable times or dates (i.e. it is recurring) or arises in predictable, processbased scenarios, the greater predictability can be viewed as reducing the risk-hazard (on the basis that processes, systems and checklists can more readily be developed to address the obligation).

Assessing Consequence (i.e. assessing how onerous the consequences of a breach seem likely to be) (i)

(ii)

Whether the obligation creates an offence. If breach of an obligation is a criminal offence, then it is likely to have at least a moderate risk consequence, on the basis that a responsible company is likely to regard a criminal prosecution as an outcome that it would be particularly keen to avoid.

How close to the critical elements of the company’s business the obligation is likely to come. The closer that an obligation comes to the core business of the company, the potentially more significant the consequences of any compliance failures might be expected to be. For example, a compliance obligation, a failure in respect of which might jeopardise a company’s licence, ought to be 49


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assessed as carrying a much higher risk of a significant adverse consequence than the consequences flowing from, for example, a breach of a company law regarding filing changes in particulars of registered directors.

(iii) Other relevant considerations. At any given point in time an obligation (or obligations of a type) may assume greater practical, regulatory, law enforcement or public relations significance than they would have at other times. There may also be reputational issues to which the company would have regard in assessing materiality.

Tips for Directors When starting a compliance exercise a director might consider the following steps: • identify the areas of activity in which the company engages and the personnel in those areas who can influence compliance with legal and regulatory requirements; • make a preliminary assessment of the materiality of the various activities to the company and the consequences of compliance failure in any of them; • assess existing compliancerelated materials in each area;

• (if necessary, with the assistance of external advisers) identify the key legal and regulatory obligations in respect of each identified material area of activity;

• (if necessary, with the assistance of external advisers and drawing on existing resources) develop training and compliance materials that are appropriate to 50


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the relevant activity and material risk that is to be addressed. These materials may be, for example, (in the case of a set of obligations that are recurring and technical) a compliance calendar and (in the case of a set of obligations that are open-ended or infrequent) text-based training materials;

• on a systematic and regular basis that takes into account materiality, audit compliance in the different areas of the company’s activities; and

• on an ongoing basis, review the training needs and the experience of personnel who have primary responsibility for compliance in respect of material risks.

An effective compliance programme, tailored to the specific needs of a particular business, has many advantages over the alternative approach of reacting on an ad hoc basis to isolated problems as they arise. It enables directors to take decisions regarding the company’s commercial objectives

and behaviour, confident that these conform to the requirements of law and are therefore unlikely to be attacked either by authorities or by third parties. It gives a director more confidence that the risk of personal liability, civil or criminal, attaching to them is reduced, thereby allowing him or her to focus on the core business of the company. Such a programme greatly reduces the risk of infringements occurring through inadvertence or negligence, and thus helps to avoid the costs and disruption which would otherwise occur. It also helps to spread an understanding of the relevance of compliance throughout the company and thereby cultivates attitudes and behaviour which are likely to render the company more competitive and efficient and therefore more profitable on a long term basis.

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12 Procedure for removing directors

The office of director may be vacated by statute, on his or her death, or under a provision in either the Articles of Association of the company or a Shareholders’ Agreement. Vacation by statute arises as follows: • the director becomes bankrupt;

• the director is disqualified from being a director by a court order or where he or she is deemed disqualified;

• failure to take a share qualification required by the Articles of Association within two months of the appointment (most Articles exclude this requirement); • the director exceeds the permitted number of directorships. Further methods of vacating office may be included in the Articles, typically these are: • if the director resigns;

• if the director is absent from board meetings for a specified period (typically six months);

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• if the director becomes bankrupt or makes any compromise or arrangement with his creditors generally;

• if the director suffers from mental disorder; • if the director is disqualified or is subject to a restrictions order.

Clearly, conflict with a director can be a difficult time for a company. The easiest way is normally to seek to persuade the director to resign in consideration of a severance package. Shareholder approval of the severance package may be required under section 186 of the Companies Act 1963. Alternatively the company’s Articles of Association may make provision for removal of a director.

However, if the foregoing is not practicable then the director may be removed by the following procedure under section 182 of the Companies Act 1963:

• member(s) wishing to remove a director must give ‘extended notice’, to the company at least 28


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days before the meeting at which the resolution is to be moved;

• on receipt of the notice the company must send a copy of the resolution to the director concerned. A board meeting must also be called to convene a general meeting; • the director concerned is entitled to make written representations to the company and to request their notification to the members. The director may also speak at the meeting on the resolution concerning his/her removal; • the board may, if it so wishes, make representation to the members whether they are for or against the resolution, or even if they are divided. However, the proposers of the resolution may only make representations at the general meeting; • an ordinary resolution (i.e. fifty per cent plus) of the members at the general meeting suffices.

Removal of a director under these circumstances does not affect his or her rights to compensation under the terms of the appointment. Executive directors are employees of the company whether there is a written contract or not and their dismissal is governed by normal employment law. If a director is removed from office and this also terminates his or her employment, the dismissal may be unfair under the Unfair Dismissals Acts. A director who is removed from office may, therefore, have a substantial compensation claim against the company.

If the director is also a shareholder then, depending on the circumstances, he or she may also have a remedy for oppression of the company’s affairs, under section 205 of the Companies Act 1963.

It is recommended that professional legal advice should be sought in all cases where a company is contemplating removal of a director.

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13 Corporate governance – what you need to know In recent years, the requirement for good corporate governance has continued to develop as a key business phenomenon, particularly in light of the many examples of poor corporate behaviour experienced in Ireland. There is no doubt that the demand by shareholders and other stakeholders for good governance is strong. Investors, regulators, government and assorted pressure groups are increasingly likely to condemn a business that fails to follow the ‘rules’. The business case for good corporate governance is, therefore, not difficult to build. A number of corporate governance codes exist in Ireland and the UK, under which many Irish organisations operate.

UK Corporate Governance Code The Financial Reporting Council’s (FRC) UK Corporate Governance Code (formerly the Combined Code) sets out standards of good corporate practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders. 54

In addition to those in the UK, companies listed on the Irish Stock Exchange (ISE) are required to report on how they have applied the main principles of the Code. The Code operates the ‘comply or explain’ rule. Listed companies must comply with the code’s detailed provisions or explain why they do not. Noncompliance with a term of the Code is not a breach, but failure to explain is. The key point is that the Code and its provisions are not compulsory; they are there for guidance and represent best practice. Source: Financial Reporting Council/ IoD UK

Code of Practice for the Governance of State Bodies This Code, which was last revised in 2009, sets out the governance framework agreed by the Irish Government for the internal management, and the internal and external reporting relationships, of commercial and non-commercial State bodies. The Code provides a framework for the application of best practice


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in corporate governance by both commercial and non-commercial State bodies. State bodies and their subsidiaries are required to confirm to the relevant Minister that they comply with the up-todate requirements of the Code in their governance practices and procedures. The requirements should be applied in all trading subsidiaries and, as appropriate, in joint ventures of the State bodies. Appropriate confirmation should be provided to the relevant Minister in relation to these. The Code makes provision for certain requirements to be applied proportionately to smaller bodies. Source: Code of Practice for the Governance of State Bodies

The OECD Principles of Corporate Governance The OECD Principles of Corporate Governance provide specific guidance for policy makers, regulators and market participants in improving the legal, institutional and regulatory framework that underpins corporate governance,

with a focus on publicly traded companies. They also provide practical suggestions for stock exchanges, investors, corporations and other parties that have a role in the process of developing good corporate governance.

The Principles cover six key areas of corporate governance – ensuring the basis for an effective corporate governance framework; the rights of shareholders; the equitable treatment of shareholders; the role of stakeholders in corporate governance; disclosure and transparency; and the responsibilities of the board. Key to the success of the Principles is that they are principle based and non-prescriptive so that they retain their relevance in varying legal, economic and social contexts. Source: The OECD Principles of Corporate Governance

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Corporate Governance Code for Credit Institutions and Insurance Undertakings This Code sets out minimum statutory requirements on how banks and insurance companies should organise the governance of their institutions. The purpose of the Code is to ensure robust governance arrangements are in place so that appropriate oversight exists to avoid or minimise the risk of a future financial crisis. The Code includes provisions on the membership of the board of directors, the role and responsibilities of the chairman and other directors, and the operation of various board committees. It applies to existing directors and boards of credit institutions and insurance undertakings from 1 January 2011.

The Code adopts a two tier approach by imposing core standards upon the boards of directors of banks and insurers in general with additional requirements defined for firms that the Central Bank designates as major institutions. 56

Source: Financial Regulator/Corporate Governance Code for Credit Institutions and Insurance Undertakings


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14 Director training and education

The role of directors and strategic leaders in all sectors and sizes of business has never been under as much scrutiny as it is today. Investors and the general public demand professionalism and integrity from Ireland’s business leaders. The demands of domestic and European legislation are also strong.

For many years, the conventional wisdom was that directors did not need specific training or a qualification for their role, as it was assumed that business experience and being “good on the job” were qualifications enough. However, modern business has changed. There are now extra demands on directors that must be met. It is vital that business leaders are up-to-date with best practice and current business thinking. Most importantly, they need a means of demonstrating this to others. To definitively meet the need for directors’ education, the Institute of Directors in Ireland offers the Chartered Director qualification.

Carrying the professional designation C Dir, Chartered Director is quickly becoming the most prestigious directors’ qualification in Ireland.

About Chartered Director Chartered Director is a unique qualification – combining learning and actual professional experience. It demonstrably marks out the holder as a person of commercial stature. Learning is achieved through the completion of a number of short, interactive and flexible courses, covering strategic topics familiar to senior business professionals.

An applicant for Chartered Director must be experienced and be able to demonstrate their contribution to a board of directors. The Chartered Director educational programme is designed and accredited by the Institute of Directors, which – similar to a university – holds a charter empowering it to award qualifications.

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Each course involves 11 days of tuition over several months, leading to two examinations. Following successful completion of the examinations, arrangements are made to hold candidate interviews for the purpose of election to Chartered Director. Reasons to become a Chartered Director: • internationally recognised professional qualification with designatory letters C Dir;

• demonstrates both acumen and business experience;

• “chartered” brand is synonymous with professional excellence; • qualification is exclusive – it is only offered by the Institute of Directors through the 1905 IoD Charter; • experienced lecturers with international credibility;

• syllabus focuses on all-round knowledge and skills;

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• syllabus includes topics familiar to senior business people; • learning in small groups facilitates networking.

Workshops and Bespoke Board Training In addition to the Chartered Director programme, the Institute of Directors in Ireland holds regular half-day and one-day workshops for directors on a range of topics. It also offers a bespoke board training service, which is held in-house enabling all the directors to attend and is tailored specifically to the issues pertinent to that particular company’s board.


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15 Directors’ dos and don’ts

Key things that a director must do: • act in the best interest of the success of the company; • act honestly, act diligently, keep good records of how the company is directed and controlled; • take good advice whenever necessary;

• keep knowledge up to date;

• show leadership and discharge directors’ duties; • disclose conflicts of interest;

• treat staff and individuals with respect; • ensure a culture of good communications;

• make sound judgements; • attend board meetings.

Key things that a director must not do: • never act in anyone’s interests other than the company’s interest; • never act dishonestly or recklessly;

• never be involved in wrongful or fraudulent trading;

• never take bribes/personal gain; • never withhold information that is relevant to the board’s decisions; • never break the law;

• never make assumptions/fail to challenge;

• never allow the company to trade whilst insolvent; • never act for competitors.

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16 About the Institute of Directors in Ireland The Institute of Directors in Ireland (IoD) is the representative body for senior, strategic business professionals in Ireland. Members include chief executives, chairpersons, board members, senior executives and partners of large national and international entities in Ireland.

Affiliated to the Institute of Directors worldwide, the primary focus of the IoD is to improve the quality of directors and boards in Ireland through advocating for better standards of corporate governance in private and public sector organisations. The Institute of Directors is firmly committed to improving the calibre of directors in Ireland and to developing the knowledge and expertise of its members.

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The Institute of Directors is Ireland’s premier business network. Directors’ lunches and dinners, as well as strategic business briefings are held throughout the year, facilitating members’ interaction and business networking. IoD Ireland members can also avail of a large number of benefits at home and when travelling abroad on business. Board Performance Evaluation Service The Institute of Directors in Ireland offers a board performance evaluation service designed to enable an organisation to gain vital insight into the effectiveness of its board. Every board needs a regular health check and more and more businesses throughout Ireland are now recognising that evaluating the performance of their board can be of real benefit in determining and improving boardroom practices and procedures. The IoD offer a tailormade service, carried out by highly capable and experienced directors and delivering independent and objective results.


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The Boardroom Centre The Institute of Directors in Ireland operates the Boardroom Centre – the leading formal, independent source of non-executive directors and chairpersons in Ireland. The business of the Boardroom Centre is:

(i) to assist with the appointment of independent and objective non-executive directors to client companies;

(ii) to promote the benefits that such directors can bring to company boards in the area of corporate governance.

When the Boardroom Centre is approached by a company seeking one or more non-executive directors, a meeting is arranged to discuss their specific requirements. Once the profile of the ideal candidate has been agreed, the Boardroom Centre’s register is used to create a shortlist of candidates for the company’s consideration.

The Boardroom Centre has helped a variety of companies to source non-executive directors and chairpersons: – it works with every type of company, from family businesses and SMEs, to multinationals and plcs. The Boardroom Centre’s panel is comprised of highly experienced senior business people, with extensive knowledge and expertise across all sectors.

The Boardroom Centre arranges introductions and meetings, prior to the formal appointment. The process is handled on a highly confidential basis. A fee is charged to the client company for the service. In addition to placing independent non-executive directors with client companies, the Boardroom Centre promotes the use of such directors as an aid to good corporate governance by issuing relevant publications and participating in appropriate seminars and functions.

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17 IoD Code of Conduct

The IoD Code of Conduct has been written in order to help directors simultaneously meet high standards of professionalism and ethics. The Code provides guidance to directors and lays down the standards that the Institute of Directors expects of its members. The Purpose of the Code One of the IoD’s fundamental aims is to increase the professionalism of its members. To further this aim, it requires all members to adhere to the Code of Conduct, as a way of providing tangible evidence of their commitment to professionalism and probity.

The Code of Conduct All references to the masculine gender include the feminine An IoD member shall: • exercise leadership, enterprise and judgement in directing the company so as to achieve its continuing prosperity and act in the best interests of the company as a whole; 62

• always assist his board in ensuring that the board establishes vision, mission and values for the company, sets strategy, delegates appropriately to management, is accountable to shareholders and holds itself responsible to relevant stakeholders; • serve the legitimate interests of the company’s shareholders;

• exercise responsibilities to employees, customers, suppliers and other relevant stakeholders, including the wider community;

• comply with relevant laws, regulations and codes of practice, refrain from anti-competitive practices, and honour obligations and commitments;

• at all times have a duty to respect the truth and act honestly in his business dealings and in the exercise of all his responsibilities as a director;


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• avoid conflict between his personal interests, or the interests of any associated company or person, and his duties to the company;

• not make improper use of information acquired as a director or disclose, or allow to be disclosed, information confidential to the company;

• not recklessly or maliciously injure the professional reputation of another member of the Institute of Directors and not engage in any practice detrimental to the reputation and interests of the Institute or of the profession of director; • keep abreast of current good practice;

• set high personal standards by keeping aware of and adhering to this Code; • apply the principles of this Code appropriately when acting as a director of a non-commercial organisation.

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18 Frequently Asked Questions

What is the difference between an executive and a non-executive director? Legally speaking, there is no distinction between an executive and a non-executive director. Yet there is a sense that the non-executive director’s role can be seen to balance that of the executive director. Executive directors have an intimate knowledge of the company and generally provide an entrepreneurial spur, whereas the non-executive director is generally expected to have a wider perspective of the business community at large and often has more to say about prudent control.

How do I become a non-executive director? The best way to get appointed as a non-executive director is to register with a professional search company. Companies interested in appointing a non-executive director will often source potential candidates through a search agency, such as the Boardroom Centre. Non-executive directors will usually be recommended to a company based on skill, suitability and 64

expertise; however, the final decision regarding appointment rests with the client company.

What can I expect to be paid as a non-executive director? Generally, remuneration varies and depends largely on how much time the non-executive directors are expected to give to their duties, including any special functions undertaken, such as sitting on sub-committees of the board. Remuneration should therefore adequately match the responsibilities of the role.

How long can I serve on a company board as a non-executive director? Best practice dictates that all directors are put up for annual re-election. However, this may not be feasible in every organisation and in those circumstances it is recommended that non-executive directors are put up for re-election every three years. In order to maintain independence, it is recommended that a non-executive should not serve on a board for longer than a maximum of nine years.


Directors’ Handbook

What is expected of me as chairman of a board? The chairman’s primary role is to ensure that the board is effective in its tasks of setting and implementing the company’s direction and strategy. The effective chairman will also uphold integrity and probity, promote effective relationships and open communication, initiate change and planning succession, promote the highest standards of corporate governance, ensure clear structure and implementation of board decisions and most importantly, provide coherent leadership.

What are the duties of the company secretary? The duties of the company secretary can be wide ranging. Typically, the company secretary is responsible for maintaining the company’s statutory registers or books, filing annual returns to the Companies Registration Office, arranging meetings of the directors and shareholders, informing the Companies Registration Office of any significant changes in the company’s

structure and ensuring the security of the company’s legal documents.

As a director do I have any responsibility for the financial statements? Yes. It is the directors’ responsibility to prepare financial statements for each financial year, consisting of a balance sheet, a profit and loss account and related notes. A statement acknowledging the directors’ responsibility for keeping proper accounting records and preparing financial statements is usually included in the annual report.

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Directors’ Handbook

As a manager do I have the same legal responsibilities as a director? No. Directors, not managers, are required in law to apply skill and care in exercising their duty to the company and are subject to fiduciary duties. A very wide range of statutes impose duties on directors, under which managers are generally not held responsible. What is the procedure for removing a director? Conflict on the board can clearly create difficulties. If it is necessary to remove a director the easiest way to do so is normally to persuade the director to resign in consideration of a severance package. However, if this is not possible then the director may be removed by the procedure under Section 182 Companies Act 1963. It is recommended that professional legal advice should be sought in all cases where a company is contemplating removal of a director.

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What are my legal duties as a director of a company that faces insolvency? The legal duties of a director when a company is in financial trouble differ from those when a company is solvent. In insolvency-related cases the following applies:

• directors should consider the interests of creditors above those of shareholders; • directors should separate their own personal interest from the company’s interests; their duty is to act in the interests of the company; • directors should take steps to avoid loss to creditors;

• directors should not enter into transactions at an undervalue or make preferences.


Directors’ Handbook

I want to develop my knowledge as a director, what resources are available to me? The Institute of Directors is the premier information source for directors in Ireland. Members can access a wide range of information about the duties and responsibilities attached to the role, as well as attending tailor-made training workshops. The loD also offers Ireland’s most prestigious director qualification – Chartered Director – which combines learning and actual professional experience, with a syllabus focused on all-round knowledge and skills.

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Directors’ Handbook

19 Useful Links

Institute of Directors in Ireland www.iodireland.ie McCann FitzGerald www.mccannfitzgerald.ie Institute of Directors UK www.iod.com Department of Enterprise, Trade and Innovation www.deti.ie Office of the Director of Corporate Enforcement www.odce.ie Company Law Review Group www.clrg.org The Companies Registration Office www.cro.ie The Law Reform Commission of Ireland www.lawreform.ie Irish Statute Book www.irishstatutebook.ie

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BAILII – British and Irish Legal Information Institute www.bailii.org Financial Regulator www.financialregulator.ie Irish Stock Exchange www.ise.ie The Competition Authority www.tca.ie Financial Reporting Council www.frc.org.uk Irish Takeover Panel www.irishtakeoverpanel.ie Commission for Energy Regulation www.cer.ie Commission for Communications Regulation www.comreg.ie European Commission www.ec.europa.eu


Directors’ Handbook

Chartered Accountants Ireland www.charteredaccountants.ie The Bar Council www.lawlibrary.ie Institute of Management Consultants and Advisers www.imca.ie Chartered Institute for Securities and Investments www.sii.org.uk The Corporate Governance Association of Ireland www.cgai.ie Institute of Chartered Secretaries and Administrators www.icsa.org.uk Law Society of Ireland www.lawsociety.ie Irish Taxation Institute www.taxireland.ie

The Institute of Certified Public Accountants in Ireland www.cpaireland.ie Organisation for Economic Cooperation and Development (OECD) www.oecd.org Boardmatch Ireland www.boardmatchireland.ie Irish Banking Federation www.ibf.ie Insurance Institute of Ireland www.iii.ie Irish Financial Services Centre www.ifsc.ie National Standards Authority of Ireland www.nsai.ie 

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The material that has been provided by the IoD (UK) to form part of this handbook remains the property of the IoD (UK) and copyright relating to those parts belongs to the IoD (UK). The remaining text is copyright of the Institute of Directors in Ireland and McCann FitzGerald. No part of the text can be reproduced without the expressed permission of the respective copyright holders. Design: www.language.ie


Directors’ Handbook

INSTITUTE OF DIRECTORS IN IRELAND Europa House Harcourt Street Dublin 2 Tel: +353 1 411 0010 Fax: +353 1 411 0090 www.iodireland.ie

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IoD Directors' Handbook  

Handbook, manual

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