In recent months corporate governance has become somewhat of a buzzword. The government has placed great emphasis on how corporate bodies are run from the way in which top employees are incentivised to the make-up of boards in terms of race, sex and gender.

As such, there is a movement toward businesses pushing their corporate governance policies front and centre. Such actions will hopefully diversify boards and prevent companies from attracting the same type of negative press that has been seen over the past couple of years. At this moment the spotlight is on both large and public companies, however this light will filter down eventually to smaller companies. It is therefore prudent for companies of all sizes to consider how corporate governance can aid them.

It is also easy to forget that directors of companies are subject to statutory duties as set out in the Companies Act 2006. There can be a tendency to emphasise corporate governance over director’s duties or to consider that they are exclusive principles. However, corporate governance and director’s duties should be seen as complementary. Moreover, by considering them as such they can strengthen not only the public perception of companies but also the long-term outlook of a company.

Duties

The general statutory director’s duties are as follows:

  • Act within your powers;
  • Promote the success of the company;
  • Exercise independent judgment;
  • Exercise reasonable care, skill and diligence;
  • Avoid conflicts of interest;
  • Not accept benefits from third parties; and
  • Declare interests in proposed or existing transactions or arrangements with the company.

Such duties should be central to the mind of any director; however, they do not need to be considered burdensome or overbearing. In fact the wider application of these duties has the potential to reinvigorate and promote strong principles of corporate governance.

Duties and Governance

Taking for example the duty to promote the success of the company, directors should reflect on the long-term consequences of their decisions in respect of their employees, suppliers and customers. Such decisions could range from how they incentivise employees for the long term betterment of the company to dealing with supply chain issues.

Looking to the future, reports by the Business, Energy and Industrial Strategy (the “BEIS”) Select Committee and the Financial Reporting Council (the “FRC”) (together the “Reports”) on corporate governance have recommended that companies should report their decision-making processes more effectively, which can help to avoid conflicts of interest and will evidence how directors are exercising reasonable care, skill and diligence. The Reports cover how pay policies should be devised and implemented within companies, meaning that director’s duties need to be revisited. The Reports suggests that pay should be clearly linked to the implementation of strategies devised by the directors and focussing on the longer-term success of the company, which links to principles of good corporate governance as well as the duty to promote the success of the company.

Commercially, aligning your duties as a director with the principles of good corporate governance has the potential to benefit all aspects of your business. From incentivising staff to promoting a positive image of your company, and from ensuring compliance with statute to developing longer-term goals for your company, all these possibilities can be more realisable through a better application of corporate governance and directors’ duties.

Top Tips

Applying the principles need not be onerous. Some simple actions are outlined below:

  • Evidence: remember to seek out advice and maintain records of all guidance that has been received.
  • Engage: discuss with employees, suppliers and customers what changes, if any, can or ought to be made to improve efficiency.
  • Minute: record meetings accurately and remember to consider your duties when considering and taking decisions.