The Role of the Director

Presented by David Spear

State Manager SA/NT

MAY 2013
What is corporate governance 2
What is corporate governance?

“oversee business performance and compliance performance,

directors must put in place systems and processes to control and
monitor — or ‘govern’ — the organisation.”
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What is ‘good governance’?

• Good governance is about the management of risk

• What is your organisations “Risk Appetite?”
• Courts and regulators will not accept ‘passive’ director
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What does a board do?

•This depends on the board, the company and priorities identified

•Directors responsible for two broad areas —
– business performance (internal role)
– compliance performance (external role)
•Balance needed between performance and compliance activities
- “Hires and Fires” the CEO
- Sets the Strategy for the organisation with the CEO
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Heard this before?

“I only sit on a Not for Profit board…..”

Stakeholder relationships: not-for-profit organisation

© 2010 Australian Institute of Company Directors

Framework for analysing the board’s functions:
Tricker model

Compliance roles Performance roles

Provide Strategy
External role accountability formulation

Approve and work with

and through the CEO
Internal role Monitoring and
supervising Policy making

Past and present

orientated Future orientated

Source: Robert I. Tricker., I994, International Corporate Governance: Text Readings and
Cases,
New York: Prentice Hall, p.149.
ASX Corporate Governance Principles 8
and Recommendations (2007)

1. Lay solid foundations for management and oversight

2. Structure the board to add value

3. Promote ethical and responsible decision-making

4. Safeguard integrity in financial reporting

5. Make timely and balanced disclosure

6. Respect the rights of shareholders

7. Recognise and manage risk

8. Remunerate fairly and responsibly

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Directors’ duties

• Fiduciary duties — Director in position of trust so owes

‘fiduciary duties’ to organisation — (a) duty to act in good faith
(b) duty of care and diligence
• Statutory duties — Duties set out in legislation —
(a) Corporations Act 2001 (b) Acts affecting operations
(eg: OHS, environmental law)
• Directors duties are owed to the organisation as a whole, not to
any particular group of shareholders/members
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Duty to act in good faith

• Section.181 (1) of the Corporations Act 2001 states:

•‘A director or other officer of a corporation must exercise their
powers and discharge their duties in good faith in the best
interests of the corporation and for a proper purpose’
•Includes:
• duty to avoid conflict of interest
• no gain to be achieved by improper use of position
• no gain to be achieved by improper use of information
• disclosure important
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Board’s involvement in strategy

An organisation’s strategy describes how it intends to create value

for its stakeholders/members/community
• Board involvement in strategy includes;

• Setting appropriate KPI’s is a key step

• Integrate strategy monitoring and risk monitoring
• Joint board-management responsibility

• Remember Directors direct, Managers manage…

The line between board and management

Board
Board
Established management team

Crisis

Increasing trust and confidence

Increasing board involvement

New CEO/management team

Management
Management
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Board strategy practices

'The problem is that many companies lack a clear process – … that

enables directors to participate meaningfully in strategy
development. … Just sitting around a table once a year, enduring a
two hour-hour Power Point presentation followed by fifteen
minutes of questions, is not a process, it’s window dressing.'

Nadler, Behan & Nadler, 2006, Building Better Boards: A Blueprint for Effective Governance
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Duties related to finance

•Duties imposed on directors to ensure that they monitor the

organisation’s financial situation and management’s use of
company resources
•Four key directors’ duties relating to an organisation’s finances:

– maintaining proper books and records

– financial reporting
– monitoring organisation’s financial position
– prevent organisation trading while insolvent
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Rights of directors

Responsibilities but some rights:

• Right to information
• Right to be advised
• Right to be heard
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Consequences of breach of duty

• Directors can be liable in civil and criminal law

• Penalties range from imprisonment to substantial fines
• Disqualification
• Damage to professional reputation
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Protection

• Best protection is vigilance in the diligent performance of

director’s duties
• Directors & Officers insurance may offer protection
• Each D&O policy is different
• Organisation not required to provide insurance
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So what does a director look for in times of change and
uncertainty?

• Ensure your organisation has an up to date Risk Matrix

• Ensure your organisation has good policies in place, OH &S,
Media etc
• Ensure your Board Members are fully aware of their duties and
responsibilities, and if not seek help and training!
• Ensure your Strategy document encapsulates the direction the
organisation wants to head in as a whole.
• Finance; Understand the Profit and Loss statement, Balance
sheets, Cash flows etc.
• As a Board Member, ask Questions! There is never a silly
question!
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Questions?