1Role of the Company Director and theBoardSport and Recreation AlliancePresented by Paul Munden17 January 20132Role of the...
4Paul MundenCommercial Law BarristerChartered DirectorCompany Secretary, Legal Director and Chief ExecutiveBusiness Link f...
7Corporate governance – evolutionUKbusiness life until mid 19th centuryintroduction of limited liability – 1844business sc...
10Corporate governance – internationallyOECDcorporate governance codes should:promote transparent and efficient marketspro...
13Shareholder rightsshareholders own shares not companiesshares bring rights:to a dividend, if paidto transfer ownership o...
16Company constitutionthe organs of the constitution are:- members (via general meetings)- board of directorslegal distinc...
19Shareholders’ meetingsall meetings are general meetingsannual general meetingextraordinary general meetingbusiness condu...
22The company’s legal and regulatoryenvironmentfeatures of a companydifferent legal corporate formsdisclosure of informati...
25Constitutional documentsMemorandum of associationArticles of associationTables A - F (CA 1985)New Models (CA 2006)26Memo...
28Corporate forms in the UKprivate limited companieswith shares – most commonlimited by guarantee – trade assns/charities ...
31Wrongful trading – examplesdirectors acting unreasonably ornegligently by entering into contractswith knowledge of the c...
34Role of the company director & the boardCourse content- corporate governance- the company’s legal and regulatoryenvironm...
37Breach of dutiesWho can take action against directors?the companyregulatorsthe Crownshareholders (derivative claims)stak...
40Effect of disqualificationacting whilst disqualifiedcriminal offenceindividual is personally liable for debts incurredby...
43Directors’ General DutiesCompanies Act 2006- to act within powers- to promote the success of the company….- to exercise ...
46Duty of care, skill & diligence(derived from Section 214, Insolvency Act 1986)the general knowledge and skill expected o...
49Avoid conflicts of interestExamples of conflicts:family companiesnominee directorsa director on the board of two competi...
52Declaration of personal interestsCA 06 distinguishes three typestransactions/arrangements to which the companyis not a p...
55Role of the chairmanArticles of Associationelected by the boardchairman of the boardalso acts as chairman of general mee...
58Role of executive directortwo accountabilities:company director - joint & several liabilityfunctional responsibility - r...
61NED independenceUK Corporate Governance CodeThey must not:have been an employee of the company in previous 5 yrs.have ha...
64Appointment of directorsexecutive directorscontract of employment/service agreementrecognises dual status of director an...
67Removal of directorsSection 168 Companies Act 2006members wishing to remove give special notice ofordinary resolutioncom...
70Additional servicesConsultancy servicesConsultancy on all aspects of directing a company effectivelyBoard evaluationBesp...
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Board Skills for Sport – the role of the company director and the board

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The Board Skills for Sport course is the only course designed specifically to help train board members in sport and recreation organisations.

Find out more by visiting: http://www.sportandrecreation.org.uk/programmes-initiatives/boardroom/board-skills-sport

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Board Skills for Sport – the role of the company director and the board

  1. 1. 1Role of the Company Director and theBoardSport and Recreation AlliancePresented by Paul Munden17 January 20132Role of the company director & the boardCourse content- corporate governance- the company’s legal and regulatoryenvironment- the director’s role3Preliminariesname cards/business cardsintroductions – course delegatescourse formatmix of presentations, exercises, questions, discussionstyle – informal & participativetimings – start, breaks, finishbeing a directorlaw & best practicemust be tailored to individual circumstancesIOD Foldersfun!
  2. 2. 4Paul MundenCommercial Law BarristerChartered DirectorCompany Secretary, Legal Director and Chief ExecutiveBusiness Link for LondonNon Executive Director NHS North EssexBoard advisor General Teaching Council for EnglandChairman National Youth Music TheatreLegal Services BoardJustice of the PeaceOther previous appointmentsNon Executive Director Customer First UK LtdNon Executive Chairman Soda Creative Ltd5Introductions – delegatesyour nameyour roleany previous boardexperience?6Role of the company director and theboardQuiz
  3. 3. 7Corporate governance – evolutionUKbusiness life until mid 19th centuryintroduction of limited liability – 1844business scandals – late 1980s1990s - emergence of corporate governance- Cadbury, Greenbury, Hampel (1992-1997)- 1st Combined Code on Corporate Governance (1998)- Turnbull (1999, 2005)- Higgs, Smith,- Combined Codes (2003 - 2008)- UK Corporate Governance Code 2010-8The Enron approach!Normal capitalism: “You have two cows. You buy a bull.Your herd multiplies, the economy grows - you sell the bull& retire”Enron capitalism: “You have two cows. You sell three ofthem to your publicly listed corporation using letters ofcredit opened by your brother-in-law at the bank where heworks. You then execute a debt/equity swap with anassociated general offer to the public so that you get allfour cows back with tax exemption for five cows. The milkrights for six cows are transferred via an intermediary to aCayman Islands company secretly owned by your chieffinancial officer who then sells the rights for seven cowsback to your listed company. Your annual report states thatyour corporation owns eight cows, with an option on sixmore”9UK Corporate Governance CodeApplication- UK listed companies on main markets (also exemplar for otherorganisations)- “comply or explain”Content- leadership- effectiveness- accountability- remuneration- relations with shareholders
  4. 4. 10Corporate governance – internationallyOECDcorporate governance codes should:promote transparent and efficient marketsprotect shareholder rightspromote the equitable treatment of shareholdersrecognise the rights of stakeholdersensure timely & accurate financial, performance,ownership and governance reportingset out the board’s role for strategic guidance andmonitoring and their accountability to the company.11Sarbanes Oxley Act 2002Application- publicly traded companies, their employees, officers & owners- auditors, lawyers, bankers, brokers & analysts of publiccompanies,- mandatory – sanctions include fines and up to 20 yrs imprisonment- CEO & CFO personally responsible for accuracy of financialreports- Management must maintain effective internal controls12Corporate governance – principal tenetsAccountabilityProbityTransparency
  5. 5. 13Shareholder rightsshareholders own shares not companiesshares bring rights:to a dividend, if paidto transfer ownership of sharesto vote at a general meetings14Directors’ relationship with shareholdersfiduciary dutiesaccountabilitypowers of appointment & removal of directorsdelegated powers – not mandated delegates“The business of the companyshall be managed by the directorswho may exercise all the powersof the company.”15Direction vs ownershipDirectionwho is a director?directors’ authorityOwnershipgeneral meetings/voting/shareholder agreements
  6. 6. 16Company constitutionthe organs of the constitution are:- members (via general meetings)- board of directorslegal distinction is clear, can become confusedin practice17Direction, management & ownershipSHAREHOLDERSBOARDEXECUTIVEMANAGEMENTPOWER &AUTHORITY RESPONSIBILITYCan bedelegatedCan’t bedelegated18Powers reserved to board – typical contentboard appointments/removalterms of reference - boardcommitteesremuneration/change ofauditorspress releasescommunications withshareholdersdividend paymentschanges to internal controlor risk managementarrangementsaccounting policiesdisposal or acquisition ofmajor assetsmajor contracts andinvestmentstreasury management andcapital policiesstrategies and budgetspension arrangementspolicies – e.g. people,health & safety, conduct,compliance.
  7. 7. 19Shareholders’ meetingsall meetings are general meetingsannual general meetingextraordinary general meetingbusiness conducted at general meetingsis:ordinary business, orspecial business20Voting at member meetingsMeetings – AGM and EGMordinary resolutions > 50%*special/extraordinary resolutions ≥ 75%** of those present and voting (i.e. excl. abstentions)Votingby show of handsby poll21Role of the company director & the boardCourse content- corporate governance- the company’s legal and regulatoryenvironment- the director’s role
  8. 8. 22The company’s legal and regulatoryenvironmentfeatures of a companydifferent legal corporate formsdisclosure of information and reportingcorporate insolvency23Limited LiabilityWho benefits from the concept oflimited liability?24Examples of board dilemmasentrepreneurial vs. prudent controlconfusion regarding the role of the boardshort term vs. long termcommercial need vs. responsibility to othersconflicts of interestdirectors of subsidiary companiesdirectors of JV companiesdirectors of family companies
  9. 9. 25Constitutional documentsMemorandum of associationArticles of associationTables A - F (CA 1985)New Models (CA 2006)26Memorandum of associationCompany’s name including ltd / plc / SECountry of registrationMembers’ liability is limitedShare capitalSubscribers’ signaturesCompany’s objects (if required, in articles post Oct 09)27Articles of associationshare capital / rightstransfer/ transmission ofsharesalteration of capitalgeneral meetingsprocedures/votingborrowing powersappointment, powers& duties of MDproceedings at directors’meetingsdisqualificationsecretarydividends & reservesaccounts and auditcapitalisation of profitswinding upindemnity
  10. 10. 28Corporate forms in the UKprivate limited companieswith shares – most commonlimited by guarantee – trade assns/charities /clubspublic limited companiescommunity interest companies (CIC) – public goodcorporations formed by statute or by chartercharitable incorporated organisation (CIO)societas europeae (SE)unlimited companies – rare, exempt from filing a/cs, tax advlimited liability partnerships (LLP)29Corporate insolvencyWhen is a company deemed to be insolvent?a. When a company’s liabilities exceed its assetsb. When a company’s current liabilities exceed its fixedassetsc. When a company is unable to pay its debts as andwhen they fall dued. When company goes into liquidation at a time whenits assets are insufficient to pay its debts and thecost of winding up30Wrongful tradingtrading when the company has noreasonable prospect of avoiding insolventliquidationpenaltiesdirectors may be personally liable to contributedisqualification for up to 15 years
  11. 11. 31Wrongful trading – examplesdirectors acting unreasonably ornegligently by entering into contractswith knowledge of the company’s affairsand avoiding the factsdirectors failing to meet their duties32Fraudulent trading“knowingly carrying on the business of acompany with intent to defraud creditors orpotential creditors”intentfraudulent - actual dishonesty/real moral blamepenaltiesdirectors may be personally liable to contributecriminal offence - Unlimited fine/7 years in prison33Fraudulent trading – examplesactions/transactions by officers when they knowthere are insufficient fundstaking orders and deposits for transaction thatcannot be fulfilledplaying one bank off against anotherlarge variations between balance sheet andactual figuresPaying off debts with directors’ guarantees
  12. 12. 34Role of the company director & the boardCourse content- corporate governance- the company’s legal and regulatoryenvironment- the director’s role35The director’s roledirectors’ dutiesconsequences of a breach of dutyroles and types of directorsection, appointment, induction and removalof directorsleadership36Who is a director?Director in law“any person occupying the position of director by whatever name called”executive non-executive directorsnominee directoralternate directorshadow director – “someone in accordance with whose instructions theboard is accustomed to act”Director by nameassociate dtr, branch dtr, regional dtr, project dtr
  13. 13. 37Breach of dutiesWho can take action against directors?the companyregulatorsthe Crownshareholders (derivative claims)stakeholders38Grounds for disqualificationWhich of the following are grounds fordisqualifying a director?general misconductunfitnessfraudulent tradingwrongful trading39DisqualificationWhat is the maximum period for which adirector can be disqualified by the courts?10 yearslifelife for a managing director15 years
  14. 14. 40Effect of disqualificationacting whilst disqualifiedcriminal offenceindividual is personally liable for debts incurredby company (any person acting on theinstructions of a disqualified person may alsobe personally liable)41Case StudiesDisqualification of directorsquestionswhat duties did the directors breach?were they unfit and would you havedisqualified them?if so, for how long?why?42Directors’ dutieshistorically – mainly common lawcodified in Companies Act 2006
  15. 15. 43Directors’ General DutiesCompanies Act 2006- to act within powers- to promote the success of the company….- to exercise independent judgement- to exercise reasonable care, skill and diligence- to avoid conflicts of interest- not to accept benefits from third parties- to declare interest in proposed transaction orarrangement44The success of the companyCompanies Act 2006long termemployeessuppliers, customers and otherscommunity / environmentcompany’s reputationneed to act fairly as between all membersA director of a company must act in the way he considers, in goodfaith, would be most likely to promote the success of the companyfor the benefit of its members as a whole, and in doing so haveregard (amongst other matters) to:45Act within the powersDoes a director have unlimited authority?No, he mustact in accordance with the company’s constitutiononly exercise his powers for the purpose for whichthey were conferred
  16. 16. 46Duty of care, skill & diligence(derived from Section 214, Insolvency Act 1986)the general knowledge and skill expected of aperson having the same functions (objectivetest)the general knowledge, skill and experiencethat the director actually has (subjective test)Directors must exercise the same standard ofcare, skill & diligence that would be exercisedby a reasonably diligently person with:47Duty of care, skill & diligencedirectors need not give continuous attention tocompany’s affairsdirectors can trust company officials to performduties properly delegated, but should monitordirectors should attend board meetings48Exercise independent judgementDirectors must exercise independentjudgement but:may take advicemay act in accordance with the company’sconstitution incl. shareholders’ resolutionsdirectors’ discretion may be fettered by the termsof an agreement to which the company is a party
  17. 17. 49Avoid conflicts of interestExamples of conflicts:family companiesnominee directorsa director on the board of two competingcompaniesa director leaving the board of one companyto set up a competing business50Benefits from third partiesDirectors may accept benefits from 3rdparties if:it “cannot be regarded as likely to give riseto a conflict of interest”51Bribery Act 2010Offences1. Bribing another person (sec 1)2. Receiving a bribe (sec 2)3. Bribery of a foreign official (sec 6)4. Failure of commercial organisations toprevent bribery (sec 7)5. Connivance (Sec 14)
  18. 18. 52Declaration of personal interestsCA 06 distinguishes three typestransactions/arrangements to which the companyis not a partyproposed transactions./arrangements to whichthe company will be a partyexisting transactions/arrangements to which thecompany is a party53Directors’ duties – to purchasers of sharesdirectors and the company are liable foruntrue/misleading statements or omissionswhich induces persons to acquire sharese.g. in a prospectusdirectors, as well as the Company, arepersonally liable for the particulars in aprospectus.54Directors’ duties – to customers, suppliersand othersdirectors are not normally liable on contractunless:director has signed cheques, purchase orders & promissorynotes where the company’s name does not appear legiblynot clear director is contracting as an agentdirector exceeds his authoritybefore the company is incorporatedperformance personally guaranteed by directorfraudulent or negligent misstatements
  19. 19. 55Role of the chairmanArticles of Associationelected by the boardchairman of the boardalso acts as chairman of general meetingsmay have a casting vote56Chairman’s role – dual focusInternalboard leadershipboard membershipboard directionboard monitoringresponsibility for peopleprovision of informationExternalreporting financial resultswider representational role57Role of the managing director- Formulating strategy- Liaising with the chairman- Developing a business portfolio in line with strategy- Delivering the business plan- Establishing planning and control systems- Ensuring objectives and standards are understood- Monitoring results against plans- Taking remedial action- Leading management and employees- Managing the company today to day
  20. 20. 58Role of executive directortwo accountabilities:company director - joint & several liabilityfunctional responsibility - reporting to &supporting MD59Myths about NEDsNEDs should be done away with altogetherit is dangerous nonsense to assume that part-time NEDs know enough to spot problemsNEDs are about as much use as Christmastree decorationsNEDs are like a bidet: no-one knows whatthey do, but they add a touch of classLord YoungTiny RowlandMichael Grade60Role of NEDs – 11 ‘C’scontributorchallenger of executives’proposalscontact providerconfidanteconciliatorchecker of Boardprocessescrisis managercoach/mentor toexecutive directorsconsultantcompensationconscience of thecompany
  21. 21. 61NED independenceUK Corporate Governance CodeThey must not:have been an employee of the company in previous 5 yrs.have had a material business interest with the company inprevious 3 yearsreceive income, other than director’s feesparticipate in company’s share option or performance relatedremuneration/pension schemeshave close family ties with Company’s advisers, directors orsenior employeeshave conflicting cross directorshipsrepresent significant shareholdersserve as a director for more than 9 years62Senior independentnon-executive directorWhich of the following does the UK CorporateGovernance Code state are appropriate roles for asenior independent NED?a) sounding board for the chairmanb) intermediary for the other directorsc) deputising for the chairman when not availabled) available to shareholders if they have concernswhich are not resolved through usual channelse) taking the lead role in appraising the chairman’sperformance63Role of company secretaryconvening board and general meetingsminute takerwriting up statutory booksfiling statutory returnscommunicating with shareholdersdealing with share transactionscomplianceboard adviserassisting the chairman
  22. 22. 64Appointment of directorsexecutive directorscontract of employment/service agreementrecognises dual status of director andemployeenon-executive directorsno contract required – usually a letter fromthe chairman (Higgs Review containsspecimen)65Appointment of directorsPrivate companies:Any person who is willing to act as a director, and is permitted by law to doso, may be appointed to be a director -(a) by ordinary resolution, or(b) by a decision of the directorsClause 17 model articles for private share companiesPublic CompaniesAt the first annual general meeting all the directors must retire from office.At every subsequent annual general meeting any directors -(a) who have been appointed by the directors since the last annualgeneral meeting, or(b) who were not appointed or reappointed at one of the preceding twoannual general meetings, must retire from office and may offerthemselves for reappointment by the membersClause 21 model articles for public companies66Removal of directors‘vacation’ by statutefailure to take up a share qualificationbankruptcydisqualified by court orderunder 16 yrs old (CA2006)other methods typically included in Articlesresignationabsence (typically six months)receiving orders made againstmental disorderremoval by written notice (Listed co/subsid.)
  23. 23. 67Removal of directorsSection 168 Companies Act 2006members wishing to remove give special notice ofordinary resolutioncompany sends copy of resolution to the directorboard meeting convenes general meetingdirector may speak at meetingboard may make representations to the membersproposer may only make representations to thegeneral meeting68Complete all Certificate modulesTake the Certificate exam& gain the Certificate in Company Direction(Exam prep sessions & 1-2-1 coaching are available if required)Attend the 3-day Diploma module -Developing Board PerformanceTake the Diploma exam& gain the Diploma in Company DirectionProgress to Chartered DirectorWhat next?69Applying the knowledgeAll IoD course leaders and consultants can provide:On-site supportCoaching or mentoringBoard consultancyor any other in-house training servicesto help you to apply the knowledge within yourorganisation.Please ask your course leader for further details
  24. 24. 70Additional servicesConsultancy servicesConsultancy on all aspects of directing a company effectivelyBoard evaluationBespoke programmes on corporate governance, finance, strategy,marketing, people, change or specific company rolesIndividual coaching or mentoringDevelopment programmes for:Specific roles such as Chairman, MD, FD, non-exec, trusteeRunning a successful small businessLeadership skillsBusiness presentation skillsNegotiation skillsFor all enquiries please contact your tutor or call theIoD Key Account Team on020 7766 8845

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