Company directors taking leave offered little protection

AUCKLAND: Company directors are seeking clarity about their risks and responsibilities when they take time out.

The Institute of Directors has published a discussion document on the subject, because New Zealand's laws offer little or no protection from criminal liability when directors take leave.

The institute said most directors would prefer to resign than face the unknown.

‘‘This is a barrier to creating a strong pipeline of diverse directors for New Zealand companies and other organisations and obstructs the recruitment and retention of women on boards’’, the document said.

People might need time out to start a family or for health reasons, it added.

The report suggested boards adopt a formal leave policy, which could be subject to shareholder approval, for added protection.

Alternatively,

boards

could consider appointing alternate directors to fill in for directors on leave.

However, this would not shield directors from the obligations imposed by a number of acts, including the Companies Act, the Financial Markets Conduct Act, and the Health and Safety at Work Act.

The Financial Markets Conduct Act offered no defence to directors on leave, although it would be difficult to argue they had been reckless or had knowledge of an illegal activity while they were absent, the report said.

‘‘Even so, the problem with taking such an approach can be a costly exercise (both financially and emotionally) in the event a director is caught up in legal proceedings.

‘‘Depending on the risk appetite of a director (and the board generally), the ‘safest' option in most circumstances will be for a director to simply resign’’, the report said.

— RNZ