Who Is on Your Board?
Often when the question above is asked, small business owners find it difficult to come up with answers, because they do not even believe they need a board of directors. The general notion is that having a board or organising directors’ meetings, is an expense they can ill afford. The law however, makes the role of directors mandatory, because every company registered under Nigerian law is required to have at least two directors and two shareholders at all times. Any company with less than two directors, is required to within one month thereafter, appoint new directors or cease to carry on business, pending compliance. It is usually the case that promoters come up with any name, at the point of incorporation. It is not unheard of, to put down the names of mothers, sisters, husbands and even casual friends, at the inception. This is because many often do not understand the role of company boards and the responsibilities attached to being a Director.
Definition and Role of a Director The Companies and Allied Matters Act (CAMA), describes a Director as any person appointed by a company to direct and manage its business affairs. Case law describes directors as “the directing mind and will of a company”. The role of a Director of a company, is therefore, a very important one and his or her primary duty, is to exercise due care, skill and diligence in the discharge of assigned duties. Directors are considered trustees of the company, in relation to the funds and assets of the company.
Shareholders are expected to hold directors accountable for their actions. All board members, are mandated to record a reasonable attendance at all company meetings. It is for this reason, that a register of attendance is kept. For accountability purposes, a table showing the attendance record of all directors is published in the annual report and account of public entities. Where a director is too busy to attend meetings, best practice demands that he sends an alternate who is knowledgeable enough to act in his stead. There have been instances where the alternate is found unsatisfactory, and the principal is usually asked to make a replacement. The law expects a disclosure of the director’s direct or indirect equity interest in the company, to be made. The particulars of all board members should also be listed on all public documents, including trade circulars, show cards and business letter headed papers.
Selecting a Suitable Director The concept of investment in companies, either private or public, is one hinged upon trust. Hence, the profile of the directors of a company could influence an investor’s choice. Many people are not likely to be excited, about investing in an entity that has one or two shady characters on its board. Having a well-respected technocrat or political leader on the board of a company, is no doubt, a plus. Promoters of startups should therefore, understand that boards offer credibility and could provide contacts and opportunities to a business as it expands. The term board of directors may sound fancy, but these persons are useful towards ensuring the success of small businesses. With respect to family businesses, they are essential towards ensuring succession planning and business continuity. Directors, if properly selected, provide support and mentorship to company founders.
Expertise, level of commitment, and integrity, are some characteristics that should be looked out for when selecting board members. A person’s ability to inject capital into a business or invest in it, should not be his or her only criteria for being appointed as a director.
All business owners should know their needs and align these with their chosen team. Do you need a director who will bring his technical skills to bear or one who will expose the company to new opportunities? Diversity should be given priority when appointing board members. The modern thinking is that age, gender, nationality and skill set when effectively distributed, allow for more efficient boards. In an attempt to embrace diversity, founders must avoid directors whose presence will not be felt at meetings or who cannot give objective suggestions. Those who have hidden agendas to possibly take over the entity, or are unduly meddlesome, should be avoided. It has been found that the appointment of an independent director, may bring some balance to the team. The term independence is shrouded in a lot of controversy. As the argument on whether a director can truly be independent continues, promoters may make a choice based on the needs of the concern.
Professional Advisers The traditional structure of the board of directors, has evolved over time to take into consideration start ups operating on lean budgets. The options of a task-specific board / an ad-hoc board, or in the alternative, a board of professional advisers, may be looked into, in an instance where a promoter is of the view that he cannot afford to have regular meetings of a full-fledged board. The team of professional advisers often consists of a lawyer, an accountant and an insurance expert, at the least. Advisory boards usually provide non-binding strategic advice to management. While these set of directors do not have the authority to vote, the expertise of their members compliment those of the traditional boards. Many advisory board members are accomplished experts, who are happy to provide advice gratis, hence the promoter needs not bother about additional expenses.
It must be mentioned that, the advent of technology makes it easier for company meetings to take place. In organising virtual meetings however, the need to document resolutions and important decisions, should not be overlooked. Another cost-saving move is to have a manageable board size. Three to five is often considered an appropriate number.
Company boards in whatever form, have an important role to play and as such, due- diligence must be carried out in constituting them. Generally, a director’s reputation may rub off on the establishment where he or she serves. There have been instances where board members who have been caught in some impropriety or the other, have been asked to resign. The leadership of a company must be constantly reviewed, and continuous education and training should be prioritised. Board evaluation should always be on the agenda. Checks should be carried out regularly, to ensure that the directors understand and are performing their duties. The question “who is on your board?’” is not a one off one, but is one that should regularly form the basis of directors’ performance review.
"THE CONCEPT OF INVESTMENT IN COMPANIES, EITHER PRIVATE OR PUBLIC, IS ONE HINGED UPON TRUST. HENCE, THE PROFILE OF THE DIRECTORS OF A COMPANY, COULD INFLUENCE AN INVESTOR’S CHOICE. MANY PEOPLE ARE NOT LIKELY TO BE EXCITED, ABOUT INVESTING IN AN ENTITY THAT HAS ONE OR TWO SHADY CHARACTERS ON ITS BOARD"