Directors routinely grapple with dilemmas – whether it’s managing diverse shareholder expectations, choosing between business strategies, reconciling conflicts of interest, or simply trying to contain an overbearing CEO. How can you navigate through the choices?
The ability to balance integrity and entrepreneurial skill in the face of uncertainty is part of the job description. And often, there is not one obvious right decision, just a series of options that are “less bad” than the others.
The legal basis on which decisions should be assessed is contained within the Companies Act 2006, which codified 250-odd years of case law into a statutory statement of seven directors’ duties.
Directors must:
- Act within the powers of the company
- Promote the success of the company for the benefit of its members (shareholders) whilst also paying regard to the impact of company operations on (among other things) the community and environment, as well as the interests of company employees.
- Exercise independent judgment
- Exercise reasonable care, skill and diligence
- Avoid conflicts of interest
- Not accept benefits from third parties
- Declare, where applicable, any interest in a transaction or arrangement with the company
- The board must be entrepreneurial, driving the business forward, while also ensuring controlling controls, checks and balances are in place
- Risks are part and parcel of running a business, and indeed profits are often described as the rewards of risk-taking, but they must be managed.
- The board needs to be informed about the workings of the company but not interfere with its day to day running
- The board must be sensitive to short-term issues but remember the overriding goal is long-term value creation.